Year-by-year balance
| Year | Principal paid | Interest paid | Remaining balance |
|---|
How the monthly payment is calculated
A fixed-rate loan is repaid in equal monthly instalments through a process called amortization. The payment is set so that the loan reaches exactly zero on the final month. The formula is:
M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
where P is the principal (the amount borrowed), r is the monthly interest rate (your annual rate divided by 12), and n is the total number of monthly payments (years × 12). The calculator above solves this for you and also builds a year-by-year table so you can see the balance fall.
Why early payments are mostly interest
Each month, interest is charged on whatever you still owe. At the start the balance is large, so most of your payment goes to interest and only a little to principal. As the balance shrinks, the interest portion falls and more of each payment chips away at the principal. This is why paying a little extra in the early years of a mortgage saves so much — every extra dollar goes straight to principal and removes all the future interest that dollar would have accrued.
Worked example
Borrow $250,000 at 6.5% over 30 years. The monthly rate is 6.5% ÷ 12 = 0.5417%, and there are 360 payments. Plugging into the formula gives a monthly payment of about $1,580. Over the full term you'd pay roughly $569,000 — meaning about $319,000 in interest on top of the $250,000 borrowed. Shortening the term to 15 years raises the monthly payment to around $2,178 but cuts total interest to roughly $142,000 — less than half.
What this calculator does and doesn't include
The figure here is principal and interest only. A real mortgage payment often also includes property taxes, homeowners or building insurance, and sometimes mortgage insurance (PMI) or HOA fees — lenders bundle these into what's called PITI. For a car or personal loan, watch for origination fees and any prepayment penalty. Always check the loan's APR, which folds most fees into a single comparable rate, rather than the headline interest rate alone.
Frequently asked questions
Will making extra payments really help?
Yes, significantly, on most loans. Because extra payments reduce principal directly, they erase future interest and shorten the term. Even one extra payment a year can take several years off a 30-year mortgage. Confirm your lender applies extra amounts to principal and doesn't charge a prepayment penalty.
What's the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. The APR (annual percentage rate) also includes certain fees, so it's usually a little higher and is the fairer number for comparing loan offers.
Should I choose a longer term for a lower payment?
A longer term lowers the monthly payment but increases the total interest you pay, sometimes dramatically. Use the calculator to compare terms side by side and weigh the monthly affordability against the lifetime cost.
This tool is for general estimation only and is not financial advice. Related: the Compound Interest Calculator shows the other side of the coin — how money grows when interest works for you.