How to use the Amortization
- Enter the loan amount, annual rate and term.
- Generate the schedule and look at the interest column in year one versus the final year.
- Find the month where principal first exceeds interest — the loan's tipping point.
- Use the cumulative interest column to evaluate refinancing or overpaying.
How the calculation works
Each row is computed in sequence. Interest for the month is the current balance times the monthly rate; principal is the fixed payment minus that interest; the new balance is the old balance minus the principal. Repeat until the balance is zero. Because the balance falls each month, the interest portion falls and the principal portion rises, always summing to the same payment.
The shape of that schedule explains a common frustration. On a 30-year loan at typical rates, principal does not exceed interest in a single payment until somewhere around year twelve, and the balance after ten years of payments is still well over three-quarters of the original. Any overpayment is applied straight to principal, which removes all future interest that balance would have generated.
Interest_t = Balance_(t−1) × r ; Principal_t = Payment − Interest_t ; Balance_t = Balance_(t−1) − Principal_tSource: Standard amortisation schedule construction used in lender statements and Regulation Z disclosures.
Worked example
A 210,000 loan at 5.85% over 25 years, payment of about 1,335.
- Month 1 interest = 210,000 × (0.0585 / 12) = 1,023.75.
- Month 1 principal = 1,335 − 1,023.75 = 311.25, leaving 209,688.75.
- Month 2 interest = 209,688.75 × 0.004875 = 1,022.24, so principal rises to 312.76.
In month one only 23% of the payment reduces the debt. By month 180 the split is roughly reversed.
Frequently asked questions
Why is so little of my early payment going to principal?+
Interest is charged on the outstanding balance, which is at its largest at the start. As the balance falls the interest charge falls with it and more of the same payment reduces principal.
How should I apply an overpayment?+
Specify that it is applied to principal, not held as an advance payment. Applied to principal it permanently removes future interest; held as a prepayment it may simply cover next month's scheduled amount.
Does the schedule change if rates move?+
On a fixed-rate loan, no. On a variable loan the payment or term is recalculated at each rate change, so the schedule from that point onwards is rebuilt from the new rate and remaining balance.
Can I use this for a car loan or student loan?+
Yes, any loan repaid in equal installments amortises the same way. Watch for interest that accrues during a study or deferment period, which is often added to the balance before the schedule begins.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.