What this loan calculator does and how it works
A fixed-rate loan is paid back in equal instalments through a process called amortisation. This tool takes three numbers — the amount you borrow, the annual interest rate and the term in years — and works out the single fixed monthly payment that clears the whole balance by the final month. It then totals the interest you’ll pay over the life of the loan and builds a year-by-year table so you can see how each payment is split.
The monthly payment comes from the present-value-of-an-annuity formula
PMT = P × r(1+r)ⁿ / ((1+r)ⁿ − 1), where P is the principal,
r is the monthly rate (annual rate ÷ 12) and n is the total
number of payments (years × 12). Each month, interest is charged on the remaining balance and
the rest of your payment reduces the principal — so the balance, and the interest with it,
falls a little faster every month.
A worked example
Borrow $250,000 at 5.5% over 30 years. The monthly rate is 0.055 ÷ 12 ≈ 0.004583, across 360 payments. The formula gives a payment of about $1,419.47. Over the full term you repay roughly $511,009, meaning about $261,009 is interest — more than the original loan itself. In the very first month, around $1,146 of that $1,419 payment is pure interest and only $273 touches the principal. By the final year the split has almost completely reversed.
Term length changes everything
The same loan over different terms shows why duration matters as much as the rate:
| Term | Monthly P&I | Total interest | Total repaid |
|---|---|---|---|
| 15-year fixed | $2,042.71 | $117,688 | $367,688 |
| 20-year fixed | $1,719.61 | $162,706 | $412,706 |
| 30-year fixed | $1,419.47 | $261,009 | $511,009 |
A shorter term means a higher monthly payment but dramatically less interest — the 15-year plan above costs about $143,000 less in interest than the 30-year. The trade-off is cash flow: the longer term frees up roughly $620 a month. Even without changing terms, paying a little extra principal each month shortens the loan and cuts the interest total.