What features should an amortization calculator include?

For accurate interest calculations, an amortization calculator should allow the user to set the loan date and the first payment date independently. The user should also be able to select a payment frequency, a compounding frequency, and an amortization method.

What are some different methods of loan amortization?

In addition to standard amortization, there are several other amortization methods. Some methods can reduce the borrower's total interest charges, while others cannot. Rule-of-78s interest-only fixed principal negative amortization amortization with a balloon due .

What other loan terms could impact amortization?

For some loans, an amortization schedule will also need to calculate loan points or fees. Additionally, instead of monthly payments, payments may be scheduled as weekly biweekly every 4 weeks bimonthly quarterly other

All About Loan Amortization

Q: What is loan amortization?

Loan amortization is the process of paying off a debt over time with regular, periodic payments. A portion of each payment covers interest charges, and the remaining amount is applied to the principal balance.

Nine Amortization Methods Explained

What Is Loan Amortization?

Wikipediadescribes loan amortization as the process of repaying a loan over time with scheduled, regular payments. Each payment has two parts: one part covers interest that has accrued since the prior payment, and one part reduces the loan’s principal balance.

An amortization schedule is a report that shows how each payment is allocated between principal and interest. It also shows the remaining loan balance after each payment. A schedule can project future payments based on assumptions, or it can document an actual payment history.

This website provides calculators for projected and actual amortization schedules. The list of calculators appears in the left column of this page.

This page explains how amortization works, what to evaluate before borrowing, and which loan terms can reduce total repayment costs. The discussion is not limited to the interest rate.

Topics on this page. Select a link to view a section:

Special cases that involve dates and first-period interest
Nine amortization methods (calculation types)
Points, fees, and APR
Negative amortization

Dates and First-Period Interest

For accurate amortization calculations, a calculator must allow the user to set both the loan origination date and the first payment due date independently.

This feature is important for accuracy.

The time between when the loan originates (the “closing date”) and when the first payment is due is almost never equal to the selected payment frequency. For example, if payments are monthly, the first period will likely be slightly shorter or longer than one month. This difference is commonly called an odd-length first period or stub period.

Supporting odd-length first periods allows more accurate calculations. However, your results may differ from results produced by calculators that do not support this feature.

Long first period

A long first period occurs when the time between the loan date and the first payment date exceeds the chosen payment frequency. For example, the loan originates on May 16, and the first payment is due on July 1 (assuming monthly payments). Interest for the additional days can be handled in four different ways:

interest options — Fig.1 – Under “Settings” — Long / Short Period Interest

None – no interest is charged for the extra days (this option is supported but is not typical in practice)
With first – odd-day interest is added to the first payment, which will be higher than future payments
With origination – odd-day interest is paid at loan origination (commonly called prepaid interest)
Amortized – odd-day interest is spread evenly across all payments; the calculator increases each payment slightly

long period interest options — Fig.2 – Odd-day interest paid at loan origination

Short first period

A short first period occurs when the time between the loan date and the first payment is less than the selected payment frequency. This can be handled in three ways:

No payment reduction – the calculator uses a full, standard payment amount for the first payment; the final payment is reduced to compensate
Reduce first – the first payment is reduced to reflect the short period
Reduce all – all payments are slightly reduced to compensate for the shorter first period

short period interest options — Fig.3 – Short first period with reduced first payment

Here is a more formal definition of odd-day interest from the Financial Dictionary.

Another important point about dates:

By default, amortization schedules typically report annual totals as of December 31.

However, some taxpayers have different fiscal year-ends. A calculator designed for professional use should allow users to set year-end totals to any month of the year.

select the fiscal year end — Fig.4 – Select the month for year-end totals

Many calculators on AccurateCalculators.com support stub periods and odd-day interest that result from long or short first periods.

Nine Loan Amortization Methods

Normal Loan Amortization

If you are unsure which option to select, use this method. In the U.S., most loans use the “normal” amortization method.

These are the defining features of a normal loan or mortgage:

They have level payments; the scheduled payment amount remains the same for each period (except possibly for odd-day interest, as discussed above).
The interest paid each period declines over time as the principal balance decreases.
To keep payments level, the portion applied to principal increases with each installment.
There may be a slight adjustment (“rounding”) on the final payment to reduce the balance to zero.

The following method is generally unfavorable for borrowers.

Rule-of-78s Payment Schedule

The Rule-of-78s method allocates more interest to early payments and less interest to later payments. The borrower therefore pays more interest at the beginning of the term and less toward the end, compared to a normal amortization schedule.

Both the total interest paid and the periodic payment amount are the same as with a “normal” loan. The difference is how each payment is allocated between interest and principal over time.

This article explains Rule-of-78s amortization in detail and describes why this structure is usually unfavorable for borrowers.

The next method produces the lowest periodic payment but has an important limitation.

Interest-Only Amortization

Some loans require the borrower to pay only the interest due each period. These are known as “interest-only loans.”

These are the typical characteristics of an interest-only loan or mortgage:

The periodic payment amount generally remains the same.
The interest amount remains constant because the loan balance does not decrease.
The entire principal balance, plus interest for the final period, is due with the last payment.

Interest-only loans are used in many credit markets.

Many bonds sold to investors are structured as interest-only loans. Bond buyers lend money to the issuer, and the bonds pay a periodic coupon that represents interest only. According to the Securities Industry and Financial Markets Association (SIFMA), the U.S. bond market—excluding mortgage- and asset-backed securities—reached $47.4 trillion in Q1 2025, a 5.1% increase over the previous year.

This amount represents a large volume of debt financed with interest-only payments.

A bond issuer can create a bond coupon payment schedule using this site’s amortization calculator. Enter the “loan date” as the bond’s issuance date and the “first payment date” as the first coupon payment. Then select the “Interest-Only” amortization method.

interest-only amortization — Fig.6 – Interest-only periodic payment

No Interest Loan Amortization

This amortization method was first added to the Windows version of these calculators more than 20 years ago in response to a user request. A couple was lending money to their son and needed a payment schedule they could use w

Ultimate Financial Calculator Promotional Section