What is an Amortisation Calculator?
An amortisation calculator generates a complete payment-by-payment schedule showing exactly how each monthly payment is split between interest and principal reduction over the life of a loan. It reveals the real cost structure of mortgages and other instalment loans — and shows precisely how much total interest you pay over the full term.
Understanding Amortisation
In an amortising loan, each payment is the same amount, but its composition changes: early payments are mostly interest, later payments are mostly principal. On a $300,000 30-year mortgage at 7%, your first payment of $1,996 breaks down as $1,750 interest and only $246 toward principal. By payment 300 (year 25), the same $1,996 is $58 interest and $1,938 principal.
- Negative amortisation: If your payment is less than the interest accrued, the principal actually increases. This occurred with option ARM mortgages pre-2008 and can happen with income-driven student loan repayment when interest exceeds the income-based payment.
- Accelerated payoff: Adding even $100–$200 extra per month in the early years of a 30-year mortgage can cut 4–7 years off the term and save tens of thousands in interest.
- Refinancing break-even: Use the amortisation schedule before and after refinancing to calculate exactly how many months it takes for interest savings to exceed refinancing closing costs.
What is an interest-only mortgage?
An interest-only mortgage allows you to pay only the interest portion for an initial period (typically 5–10 years) with no principal reduction. This results in a lower monthly payment during the interest-only period but means your balance does not decrease. After the interest-only period, payments increase significantly (often 30–50% more) when principal repayment begins. These products are appropriate for investors who plan to sell before the P&I period, but carry risk if property values fall or refinancing becomes unavailable.
Why do extra principal payments save so much interest?
Because every extra dollar applied to principal eliminates future interest on that dollar for the remainder of the loan term. $1,000 extra in Year 1 of a 30-year 7% mortgage saves $6,000+ in total interest (roughly the present value of interest on $1,000 over 29 years). The same $1,000 extra in Year 28 saves only $140. This is why extra payments are most valuable early in the loan term.
What is the difference between amortisation and depreciation?
Both spread a cost over time, but for different assets. Amortisation applies to intangible assets (loan costs, patent costs, goodwill) or loan repayment (as discussed here). Depreciation applies to tangible physical assets (equipment, buildings, vehicles). In accounting, both reduce taxable income for businesses — loan origination costs are amortised; business equipment is depreciated. In common loan usage, "amortisation" simply means the loan repayment schedule.
Last Updated: March 2026 · For US audiences