Amortization calculator

An amortization calculator is a financial tool designed to assist businesses in understanding and planning the repayment of loans over time. It helps seeking clarity on your repayment journey and making informed financial decisions.

Ian Hawkins

Page written by Ian Hawkins. Last reviewed on July 12, 2024. Next review due April 1, 2025.

20 years

This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

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How payments change over the life of a 20 year loan

Amortization schedule breakdown

What is an amortization?

Amortization refers to the process of paying off a loan through regular payments over time. These payments are split between reducing the principal—the initial amount you borrowed—and paying the interest, which is the cost of borrowing that principal. It is a term you’ll encounter with home mortgages, car loans, and other types of installment loans. It’s a systematic way for borrowers to manage their repayments and for lenders to receive a steady stream of payments. Plus, it helps you see exactly where your money is going each month, making financial planning a bit easier.

Imagine you’ve taken out a mortgage in Ontario. At the start of your loan, say the first few years, your payments will primarily cover the interest. Over time, the principal starts taking up a bigger portion of those payments, steadily chipping away at the total amount you owe. In Canada, amortization periods for mortgages typically range from 15 to 30 years. Knowing your amortization schedule can help you make extra payments strategically, potentially saving you a significant amount in interest over the life of the loan.

Understanding amortization helps you plan your finances better and ensures you’re prepared for how your loan repayments will change over time. It’s all about making informed decisions and managing your debt smartly.

What is an amortization schedule?

An amortization schedule is a detailed table or spreadsheet that outlines the systematic repayment of a loan over time. It provides a comprehensive breakdown of each loan payment, specifying how much of each payment goes toward reducing the principal amount and how much is allocated to cover interest expenses. 

The schedule outlines each installment payment into two primary components:

    • Principal payment: The portion of the payment that goes towards reducing the outstanding loan amount.
    • Interest payment: The amount allocated to cover the interest accrued on the remaining loan balance

Furthermore, the schedule displays the remaining balance of the loan at the beginning and end of each period. As the loan is repaid, the outstanding balance gradually decreases. Additionally, it provides transparency into the total cost of borrowing and can be a valuable tool for comparing different loan options. 

How does an Amortization schedule work?

An amortization schedule is your go-to guide for knowing how each payment breaks down. Early on in the loan, most of your payment goes towards the interest, but as time passes, a larger chunk goes towards the principal. This gradual shift ensures that by the end of your loan term, you’ve fully paid off both the principal and the interest.

How to calculate amortization?

To use the mortgage amortization calculator, follow these simple steps:

  • Input your loan amount: In the “Loan amount” field, enter the sum you’re borrowing.
  • Define your loan term: In the “Loan term” section, specify the duration of your loan. Whether it’s 30 years, 15 years, or another timeframe, tailor it to fit your financial goals.
  • Set your interest rate: Enter the interest rate applicable to your mortgage in the “Interest rate” field.
  • Select your loan start date: Choose the month when you made your inaugural payment in the “Loan start date” field.

How can an amortization calculator help me?

An amortization calculator is a powerful financial tool that can assist businesses in various ways by providing detailed insights into the repayment of loans. Here are several ways in which an amortization calculator can be beneficial:

  1. Payment planning and budgeting: An amortization calculator helps you estimate the monthly payments required to repay a loan. Understanding the monthly payment amount allows for better budgeting and financial planning.

  2. Visualization of loan repayment: The calculator generates an amortization schedule, which shows the gradual reduction of the principal amount and the declining interest payments over time. It outlines how much of each payment is allocated to the principal and how much is attributed to interest. 

  3. Comparison of loan options: Our calculator enables you to compare various loan scenarios by adjusting the different parameters. Furthermore, it provides the total interest paid over the life of the loan. This information is key to assess the overall cost of borrowing.

  4. Financial decision support: The calculator empowers you to make informed financial decisions by providing a clear understanding of the long-term implications of a loan – assisting in evaluating whether a loan aligns with your financial goals and constraints. 

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