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Loan Amortization: Frequently Asked Questions
What is a loan amortization schedule?
A loan amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.
How is the interest portion of my payment calculated?
Interest is usually calculated by multiplying the current remaining loan balance by your periodic interest rate. In the early years of a loan, a higher percentage of your monthly payment goes toward interest; as the balance drops, more goes toward the principal.
How do extra payments affect my amortization?
Making extra payments directly reduces the principal balance of your loan. This shorten the overall loan term and significantly reduces the total interest paid over the life of the loan. Our calculator allows you to add monthly or one-time extra payments to see these savings in real-time.
What is the difference between a fixed-rate and adjustable-rate amortization?
In a fixed-rate loan, your monthly payment remains the same for the entire life of the loan. In an adjustable-rate mortgage (ARM), the interest rate can change periodically, which causes the amortization schedule and monthly payment to be recalculated at specific intervals.
Does amortization apply to all types of loans?
Most installment loans, such as mortgages, auto loans, and personal loans, use amortization. However, credit cards and "interest-only" loans do not typically follow a standard amortization schedule because the principal balance may not decrease with every payment.