Loan Calculator

How a loan actually unwinds

Almost everybody shopping for a loan looks at one number: the monthly payment. It is the wrong number to look at alone, and the reason becomes obvious the moment you see where each payment goes.

The first years are almost all interest

Interest is charged on what you still owe. At the start you owe nearly everything, so nearly all of the payment is interest and only a sliver reduces the debt.

On a 250,000 loan at 6.5% over thirty years, the payment is about 1,580. In the very first month roughly 1,354 of that is interest and only about 226 comes off the balance. After a full year of payments — nearly 19,000 handed over — the debt has fallen by less than 2,800.

This is not a trick and nothing is being hidden. It is what charging interest on an outstanding balance means. But it explains several things that otherwise feel unfair: why the balance barely moves at first, why selling early can leave you with less equity than you expected, and why an extra payment made in year two is worth several made in year twenty-five.

The chart above shows this directly. The grey part of each year is interest, the coloured part is debt actually being repaid. Watching where they cross is more informative than any single figure.

The total is the real price

Stretching a loan over a longer term lowers the monthly payment, which is why it is the first thing offered when a payment feels too high. It also increases what the loan costs, often dramatically, because you are borrowing the same money for longer.

Six hundred less a month, and more than twice the interest. Neither choice is wrong — a payment you can actually meet every month beats a theoretical saving you default on — but the trade should be made with both numbers in view. That is why this calculator shows the total as prominently as the payment.

Why an extra payment does so much

Anything paid above the required amount comes straight off the balance. It skips the interest queue entirely, and because future interest is charged on a smaller balance, the saving compounds for the rest of the loan.

On that same thirty-year loan, an extra 200 a month clears it seven years and eleven months early and saves 97,618 in interest. The extra payments themselves add up to 53,000 over the shortened term — so the saving is nearly twice what the extra costs. The earlier it starts, the larger the effect, because each early payment removes interest from more remaining years.

Two things worth checking with your own lender before relying on this. Some loans carry early repayment charges, which can cancel out the benefit. And some lenders apply extra money to the next scheduled payment rather than to the principal, which does almost nothing — you usually have to state explicitly that it goes against the balance.

Rates are not the same everywhere

A mortgage in the United States, the United Kingdom or the eurozone sits in the low single digits to low teens, and most calculators are built as though that were the whole range. It is not. In economies with high inflation the nominal rate on a personal loan carries the expected inflation inside it, and rates well into three figures are ordinary rather than exotic.

There is a second-order effect worth knowing, because it looks like a contradiction. In those same economies an inflation-indexed mortgage often carries a low nominal rate — single digits — because the indexation, not the rate, is what keeps pace with prices. So the same borrower can face 8% on a housing loan and 90% on a personal loan in the same week, and neither figure is a mistake.

The rate box here takes any figure, and the term can be set in months as well as years, because a short personal loan is a different shape from a thirty-year mortgage and both are worth working out.

Where a fixed schedule does not describe the loan

Everything above assumes a fixed nominal rate: the rate is agreed at the start and the payment stays the same in the currency it is written in. That is the normal arrangement in the United States, the United Kingdom, Canada, Australia and most of the eurozone, and it is what this schedule models.

It is not the normal arrangement everywhere. In several countries the loan is denominated in an inflation-indexed unit rather than in the currency itself — UVA in Argentina, UF in Chile, UDI in Mexico, UVR in Colombia, the Madad in Israel. The balance and the payment are both restated as prices rise, so a schedule showing a constant nominal payment describes something that does not exist there. Choose one of those currencies and the calculator says so on the page rather than letting the table imply otherwise.

The arithmetic is still useful in those cases — it shows the shape of the thing, how front-loaded the interest is, what an extra payment does — but the figures are not a forecast of what will land in your account each month.

What this calculator does not know

It computes the arithmetic of the loan itself, accurately. It has no way of knowing about the things a lender adds around it:

• Arrangement, origination or valuation fees
• Property taxes and insurance, which are often collected with a mortgage payment
• Mortgage insurance where a deposit is below a threshold
• Variable rates, which change the payment partway through

This is why a quoted monthly payment is frequently higher than a calculator's. The gap is not an error in the arithmetic — it is everything bundled alongside it. A useful question for any lender is which of these are inside the figure they have quoted you.

This is a calculator, not advice. It will tell you what a set of numbers implies; whether the loan is a good idea for your situation is a question for you, and where the sums are large, for someone qualified to advise on them.

Nothing you type is sent anywhere

Loan amounts, rates and terms are all worked out in your browser. There is no server, no account and no logging — which for a page where people type what they earn and what they owe seems like the obvious arrangement rather than a feature.

The PDF is built in the page too. You can disconnect from the internet after loading, calculate, and download the schedule normally.