Amortization Calculator

What is Amortization?

Amortization is the process of paying off a loan through regular payments over time. Each payment covers both the interest charges and a portion of the principal balance. Early in the loan, most of your payment goes toward interest. Over time, more of each payment goes toward reducing the principal.

How Compound and Payment Frequencies Work

The compound period determines how often interest is calculated and added to your balance. The payment frequency determines how often you make payments. These can be different:

• Monthly Compounding, Monthly Payments: Most common for mortgages and car loans
• Daily Compounding, Monthly Payments: Common for credit cards
• Bi-Weekly Payments: Results in 26 payments per year (effectively 13 monthly payments), helping you pay off the loan faster
• Semi-Annual Compounding: Often used for Canadian mortgages

Benefits of Making Extra Payments

• Reduce Total Interest: Extra payments go directly toward principal, reducing the amount of interest you pay over the life of the loan
• Shorten Loan Term: Paying extra can help you become debt-free months or even years earlier
• Build Equity Faster: For secured loans like mortgages, you build ownership in your asset more quickly
• Flexible Options: Make extra payments monthly, annually, or as one-time lump sums when you have extra cash

Common Loan Types and Their Terms

• Mortgages: Typically 15-30 years with monthly payments and monthly or semi-annual compounding
• Auto Loans: Usually 3-7 years with monthly payments and monthly compounding
• Personal Loans: Generally 1-7 years with monthly payments and daily or monthly compounding
• Student Loans: Often 10-25 years with monthly payments and daily compounding