How Loan Amortization Works
When borrowing money via a fixed-rate installment mortgage or personal loan, each monthly payment is divided into two distinct components: the principal (the original borrowed amount) and the interest (the lender's fee for the capital).
In the early years of a 30-year mortgage, the majority of your monthly installment goes toward interest. As the balance decreases over time, an increasing percentage pays down the principal balance.
Key Factors Influencing Your Payment
- Loan Term: A 15-year mortgage significantly reduces total interest paid over the life of the loan compared to a 30-year term, but requires a higher monthly installment.
- Interest Rate: A 1% difference in APR can translate into tens of thousands of dollars in cumulative savings over the duration of the loan.
- Property Taxes & Insurance: This calculator provides the baseline principal and interest (P&I). Escrow items like property taxes and homeowners insurance are calculated separately.