How to Calculate Amortization Schedule
An amortization schedule breaks down each loan payment into principal and interest components over the life of the loan. It reveals how your balance decreases over time.
The Formula
Interest = Balance x Monthly Rate; Principal = Payment - InterestWhere:
InterestInterest Portion — Part of payment going to interestPrincipalPrincipal Portion — Part of payment reducing the balanceBalanceRemaining Balance — Outstanding loan amount owedRateMonthly Rate — Annual rate divided by 12Step-by-Step Example
Here's how to calculate amortization schedule step by step:
- 1Calculate monthly payment: Use the loan payment formula to find the fixed monthly payment.
- 2Split first payment: Multiply the balance by the monthly rate for interest; the rest goes to principal.
- 3Update balance: Subtract the principal portion from the remaining balance.
- 4Repeat for each month: Continue the process for every payment until the balance reaches zero.
Following these 4 steps gives you the final amortization schedule value.
Skip the Math
On a $200,000 mortgage at 6% for 30 years, the first payment is $1,199 ($1,000 interest, $199 principal). By year 15, it shifts to roughly $597 interest and $602 principal.
Use the Free CalculatorWhy You Need This Calculation
- An amortization schedule shows exactly how much of each payment goes to interest versus principal over time.
Common Mistakes
Assuming equal principal in each payment.
Early payments are mostly interest; principal increases over time.
Rounding intermediate calculations.
Keep full precision until the final result to avoid compounding errors.
Ignoring the impact of extra payments.
Even small extra payments can save thousands in interest over the loan life.