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Calculate your loan payments and total interest
Last updated: January 2026
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Understanding Loan Payments
Each payment covers both principal and interest. Early payments are mostly interest, while later payments are mostly principal. Making extra payments can significantly reduce total interest paid over the life of the loan.
Understanding Loan Payments
How Amortization Works
Amortization is the process of spreading a loan into a series of fixed payments over time. Each payment is divided between interest and principal. In the early years, a larger portion of each payment goes toward interest because the outstanding balance is higher. As you pay down the principal, the interest portion shrinks and more of each payment reduces the balance. This is why the first few years of a mortgage feel like you are barely making progress on the principal.
How Extra Payments Help
Making extra payments directly reduces your principal balance, which means less interest accrues on every future payment. Even one additional payment per year on a 30-year mortgage can shave 4-5 years off the loan and save tens of thousands of dollars in interest. Some borrowers use bi-weekly payment strategies (26 half-payments per year instead of 12 full payments) to achieve a similar effect without feeling the financial strain of a large lump-sum payment.
Fixed vs Variable Rates
Fixed-rate loans lock in your interest rate for the entire term, providing predictable monthly payments. Variable-rate (or adjustable-rate) loans start with a lower introductory rate that adjusts periodically based on market conditions. Fixed rates offer stability and are ideal when rates are low, while variable rates can save money initially but carry the risk of rising payments if interest rates increase.
APR vs Interest Rate
The interest rate is the cost of borrowing the principal amount. APR (Annual Percentage Rate) includes the interest rate plus other fees and costs such as origination fees, closing costs, and mortgage insurance, spread over the loan term. APR is always equal to or higher than the interest rate and provides a more complete picture of the true cost of borrowing. When comparing loan offers, APR is generally the better metric to use.
Frequently Asked Questions
How is a monthly loan payment calculated?
Monthly loan payments are calculated using an amortization formula that factors in the loan amount, interest rate, and term length. Each payment is split between interest (calculated on the remaining balance) and principal. Early payments are mostly interest; later payments are mostly principal.
What is an amortization schedule?
An amortization schedule is a table showing every payment over the life of a loan, broken down into principal and interest portions. It shows how your balance decreases over time and how much total interest you will pay.
Should I choose a shorter or longer loan term?
Shorter terms (e.g., 15 years vs. 30 years) have higher monthly payments but save significantly on total interest. A 30-year $300,000 mortgage at 7% costs about $418,000 in interest, while a 15-year term costs roughly $186,000 — saving over $232,000.
How do extra payments reduce my loan cost?
Extra payments go directly toward reducing your principal balance, which means less interest accrues on future payments. Even one extra payment per year on a 30-year mortgage can shave 4-5 years off the loan and save tens of thousands in interest. Some borrowers make bi-weekly payments (26 half-payments per year instead of 12 full payments) to achieve the same effect.
What is the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus other fees and costs (origination fees, closing costs, mortgage insurance) spread over the loan term. APR is always equal to or higher than the interest rate and gives a more complete picture of the total cost of borrowing.