How this instrument works
Amortization is the process of retiring a loan through equal fixed payments, where each installment blends interest on the outstanding balance with a slice of principal that grows as the balance shrinks. The payment itself never changes; what changes, month after month, is the split between the two pieces inside it — a mechanical consequence of charging interest only on money still owed.
This sheet answers a narrower question than what the payment is — it tells you what a loan actually owes at any point before maturity, not just at the start or the end. That number matters to someone selling a financed car or house before the loan is paid off, to a borrower checking a lender's official payoff quote against their own math, and to a bookkeeper who needs to split a single payment into its interest and principal components for a set of financial statements.
The balance formula assumes every payment landed exactly on schedule at the exact fixed amount, with no late fees, no skipped months, and no extra principal paid down early — any of those shift the real balance away from this figure. It also has nothing to say about taxes, insurance, or servicing fees a lender might bill alongside the loan; this instrument isolates principal and interest arithmetic only, the same two pieces every amortization table is built from.
- Enter the amount borrowed under Original loan amount, $.
- Set the rate your lender quoted under Annual interest rate, %.
- Enter the full repayment length under Loan term, months.
- Enter how many installments have already posted under Payments made so far.
- Read Monthly payment for the fixed installment and Remaining balance for what's still owed today.
Worked example — a $250,000 loan, five years in
Borrow $250,000 at 6% annual interest over a 360-month term, thirty years — Original loan amount, $ set to 250000, Annual interest rate, % set to 6, and Loan term, months set to 360. The payment formula returns Monthly payment = $1,498.88, the fixed figure charged every month for the full three decades regardless of how that payment splits internally.
Set Payments made so far to 60 — five years of on-time monthly payments — and Remaining balance reads $232,635.89. The loan has collected $89,932.58 in total payments over those five years, yet only $17,364.11 of that retired actual principal; the remaining $72,568.47 was interest, exactly the front-loaded pattern this instrument makes visible rather than something a borrower can only estimate.
Questions
Why doesn't the balance fall by an equal fraction of the loan each month?
Because interest is recalculated every month on whatever principal is still outstanding, and that outstanding amount is largest at the very start. Early payments therefore route most of their dollars to interest and only a sliver to principal; the split reverses gradually, so a loan halfway through its term by month count still owes meaningfully more than half its original balance.
How does this figure relate to the payoff quote a lender sends me?
It's the same underlying arithmetic a lender uses, but a payoff quote is usually dated mid-month and adds a few days of per-diem interest accrued since your last payment posted, plus any recording or statement fee the lender charges. Treat Remaining balance here as the schedule's value on your next payment date, and expect the lender's official number to sit a little higher.
Does this work for any installment loan, or only mortgages?
Any loan repaid with equal fixed payments and a fixed rate fits this math — car loans, personal loans, equipment financing, SBA loans, even a private note between two people. Only the scale and the term differ; the formula sizing the payment and tracking the balance stays identical across all of them.
What does Payments made so far actually count?
It counts scheduled installments that have already posted, not months since origination and not payments made early or skipped. If a loan opened at month zero and 60 on-time monthly payments have posted, enter 60 regardless of the calendar date — the schedule tracks payments, not elapsed time.
Who actually needs the remaining balance figure, and why?
Anyone selling collateral or refinancing mid-loan needs it to know how much of the sale proceeds a lender will claim, and a bookkeeper building a loan amortization table for financial statements uses the identical figure to split a payment into its interest and principal components. Both are asking the same question this formula answers: what is actually still owed right now.
What does this calculation leave out?
It assumes every payment landed exactly on schedule at the exact amount — no late fees, no skipped months, no extra principal paid down early, and no rate changes on a variable loan. It also excludes taxes, insurance, or servicing fees a lender might bundle into one billed amount; this sheet isolates principal and interest only.
References
- U.S. Small Business Administration — Loans
- Federal Reserve — Consumer Credit statistical release (G.19)
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.