Amortization Calculator

There are different calculators on this website that can help with specific types of amortization calculations. The Amortization Calculator can do most of the work, but other calculators might be better suited for more specific cases.

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• Investment Calculator
• Business Loan Calculator
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What is Amortization?

Amortization describes paying off debt with regular payments. There are two types of amortization.

1. The first is when you slowly and systematically repay a loan.
2. The second type is when a business pays for something expensive and spreads the value of an asset over long periods.

Paying Off a Loan Over Time

When someone takes out a mortgage, car loan, or personal loan, they usually make monthly payments to the lender, called “amortization.” The amount owed is used to compute interest. That means that part of the monthly payment goes towards the loan's interest. The remainder is used to reduce the amount of money owed on the loan.

As more of the principal is paid off over time, interest accrues at a lower rate. Check how this works by looking at the amortization table.

Credit cards are entirely different from other types of loans. They are not amortized. They are an example of revolving debt, where the balance owed can be carried over from month to month, and the amount repaid each month can change. Our Credit Cards Payoff Calculator can help you create a plan to pay off your credit cards.

Other types of loans that work similarly include interest-only loans and balloon loans. An interest-only loan comprises a period where you only have to pay the interest on the loan. A balloon loan has a large principal payment at the end of the loan.

Amortization Schedule

An amortization schedule shows each payment you will make on an amortizing loan. This includes the total payment amount, the interest, and the principal.

When you make a payment on an amortized loan, part of that payment is used to pay the interest on the loan, and another part goes towards reducing the principal balance. The chart shows how much of your annual and monthly payments go toward paying interest and how much goes toward paying off your principal.

The amount that goes toward the principal debt fluctuates depending on when you make that particular payment in the repayment schedule. The amortization schedule provides information on how much of each payment is allocated to each of these parts: interest, principal paid to date, and balance.

Just be aware that most basic amortization schedules do not consider extra payments borrowers can make. Amortization schedules rarely consider fees. An amortization plan typically only applies to fixed-rate loans; it does not apply to adjustable-rate mortgages, variable-rate loans, or credit lines.

Spreading Costs

Some businesses sometimes purchase expensive items used for a long time and classified as investments. The cost of these investments, which often include costly equipment or even machinery and buildings, is usually spread out. For example, if a company purchases a costly factory, it can distort financial reports. For greater accuracy, the cost of the factory is allocated to the number of years it is expected to last.

The investment cost is divided into smaller portions called “depreciation.” Depreciation is an expense used to calculate how much an asset is worth over its lifetime. This amount is then used to reduce taxes each year until the expected lifetime of the asset expires. This is often done when the company purchases so-called “tangible assets.” These are physical things, like machinery, equipment, or even an entire factory, as in our example.

But also, when a company spends money on a patent or copyright, it can sometimes be written off. These assets are called “intangible assets.” Under U.S. law, Section 197, the value of these intangible assets can also be deducted each month or year. Like with any other amortization, you can figure out how much this will be yearly by using amortization schedule.

There are different intangible assets. Some examples are:

• Patents, copyrights, including formulas, patterns, know-how, or designs.
• Records, and operating systems, including information concerning customers.
• Supplier relationships (like the value of future purchases)
• Customers and customer relationships.
• Government licenses or permits.
• Covenants not to compete.
• Trademarks and trade names or franchises.
• Contracts for the use of intellectual property.
• A company’s reputation (Goodwill)
• Current employees, their experience, education, and training.
• A business worth when it is still running (going-concern value).

Not all assets can be depreciated

The IRS says that some assets are not considered intangible, even if they have a specific value for the company. These include business interests, contracts, land, computer software, etc. Intangible assets not gained when you buy a business are also not considered.

The same is valid for interest on a property or debt that has no connection with the actual purchase of a business and certain transaction costs. Some intangible assets, such as goodwill, have indefinite useful lives and are not legally amortized for tax.

Amortizing Start-up Costs

In the U.S., start-up costs, defined as costs incurred to explore the feasibility of establishing or acquiring a going concern and the costs of establishing a going concern, can only be amortized under certain conditions.

These must be expenses deductible as expenses of doing business if incurred by an existing going concern and must be incurred before the commencement of active business. Examples of such payments include consultant fees, financial analysis of potential acquisitions, advertising costs, and employee benefits.

The business owner must pay these costs before their business can be called operating.

According to IRS guidance, the initial costs of starting a business must be amortized.