How to Calculate Loan Payments and Payoff Time for Real Loans

The quick version

A fixed-rate loan charges interest on whatever balance is still outstanding, then applies the rest of your payment to principal. Early in the loan, the balance is high, so most of each payment is interest; later, as the balance shrinks, more of each payment goes to principal. An amortization schedule is just this split, shown year by year (or month by month).

Example 1: A standard 30-year mortgage

Say you borrow $300,000 at a 6.5% annual rate on a 30-year term, with no extra payments. Enter these values in the calculator:

• Loan amount: 300,000
• Annual interest rate: 6.5
• Loan term: 30 years
• Extra monthly principal: 0

Your monthly payment is $1,896.20. Over the full 30 years you'll pay $382,633.47 in interest — more than the original loan amount — for a total of $682,633.47 paid.

Example 2: The effect of an extra $200 a month

Same loan, same rate and term, but you add $200 to every monthly payment toward principal:

• Loan amount: 300,000
• Annual interest rate: 6.5
• Loan term: 30 years
• Extra monthly principal: 200

Your total monthly payment becomes $2,096.20, but the loan is fully paid off in 23 years, 1 month — almost 7 years early — and total interest drops to $279,184.67, a savings of over $103,000. Because interest is charged on the remaining balance, paying down principal faster early in the loan has an outsized effect on total cost.

Example 3: 15-year term versus 30-year term

Same $300,000 at 6.5%, but a 15-year term instead of 30, with no extra payments:

• Loan amount: 300,000
• Annual interest rate: 6.5
• Loan term: 15 years

The monthly payment jumps to $2,613.32 — about $717 more than the 30-year payment — but total interest falls to just $170,397.98, less than half of the 30-year scenario. This is the core trade-off between loan terms: a shorter term means a higher required payment but a much lower total cost.

Step-by-step: using the Amortization Calculator

1. Open the Amortization Calculator.
2. Enter the amount you're borrowing in Loan amount.
3. Enter the loan's stated annual rate in Annual interest rate.
4. Enter the repayment period in Loan term (years).
5. If you plan to pay extra toward principal each month, enter it in Extra monthly principal; otherwise leave it at 0.
6. Optionally set a Loan start date to see actual payment dates in the schedule.
7. Select Calculate to see the monthly payment, total interest, payoff time, and a full yearly (or monthly) schedule — downloadable as a CSV.

Common mistakes to avoid

• Treating the monthly payment as the whole housing cost. For a mortgage, this calculator estimates principal and interest only — property taxes, homeowners insurance, and any mortgage insurance are usually added on top by a lender.
• Underestimating extra payments. As Example 2 shows, even a modest extra monthly amount can cut years off a loan and save far more in interest than the extra payment itself, because it reduces the balance that future interest is calculated on.
• Comparing loans by payment size alone. A lower monthly payment from a longer term can mean paying substantially more in total interest — always check the total interest figure, not just the monthly number.

Frequently asked questions

Why is so much of my early payment interest?

Interest is charged on the current balance, which is highest at the start of the loan. As you pay down principal, the balance shrinks, so less of each subsequent payment goes to interest and more goes to principal.

Does refinancing to a lower rate always save money?

Usually, but not automatically — run your current remaining balance and term against the new rate and compare total interest, since refinancing can also reset you back to a longer term.

What happens if my extra payment is more than the remaining balance?

The calculator caps the principal paid at whatever balance remains in the final month, so the schedule ends cleanly at a zero balance rather than going negative.