One of the most frustrating things about borrowing money is that it can feel like forever before you actually get your loan paid off. Because of the amortization method that most loans use in determining monthly payments, your loan balance typically goes down only very slowly near the beginning of the loan, and then falls faster as time goes by. For loans with high interest rates, though, very little of your monthly payments typically goes toward principal payments. This handy calculator can give tell you how much you have left to pay on your loan and how hard your future payments will work toward getting you completely paid off. Let's take a closer look at the calculator and how it works.

 

* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Why your loan balance falls so slowly

In general, you'd expect that if you borrow money for a certain period of time, your outstanding loan balance would fall at a steady pace throughout the loan's term. For instance, on a 30-year mortgage, you might expect to have your loan paid down by about a third 10 years in, and have just half of your original loan left to pay after 15 years.

That would be true if you could borrow on an interest-free basis, because in that case, the entire amount of your monthly payment would go toward principal. However, when you have to pay interest on a mortgage but still want to make fixed monthly payments throughout the entire term of the mortgage, the impact is that more of each payment goes toward interest toward the beginning of the loan than near the end, and that skews the trajectory of your loan balance's decline.

Loan General Gettyimages
Image source: Getty Images.

How loan balances decline in real life

To see how this works, let's take a realistic example. Say that you take out a 30-year mortgage for $200,000 at an interest rate of 5%. Your monthly payments will be roughly $955. Below, you can see how much your balance is at five-year increments during the 30-year term of the loan:

Time Since You Took the Loan

Remaining Balance

Beginning

$200,000

5 years

$180,895

10 years

$157,568

15 years

$129,086

20 years

$94,309

25 years

$51,846

30 years

$0

Table by author. Data source: Calculator.

As you can see above, after 10 years, you'll only have just over a fifth of your original balance paid off, even though a third of the period has gone by. By the halfway mark in terms of years passed, your loan balance is down by only a third. Looking at it another way, it takes almost 20 years for you to get your mortgage loan paid down halfway, and it takes more than five years just to get the first 10% of your loan balance repaid.

A closer look at the calculator results shows what's going on here. Early on in the example, more than two-thirds of every payment is going toward interest, leaving less than $300 to go toward paying down the principal of the loan. However, after 15 years, about $525 of every monthly payment is reducing the loan principal, because a smaller loan balance means that you're paying less interest each month. Eventually, your final payment has just $3 of interest, with the remaining $952 going toward repaying the loan principal in full.

What to watch out for

Keep in mind that this example used a fairly low interest rate. Push the rate up to 8%, and it takes almost nine years to get the loan paid down by a tenth, nearly 16 years to pay down the first quarter of the loan balance, and 22.5 years to get your mortgage cut in half.

It's useful to know how much you have left to repay your loan, and keeping your overall debt balance in mind is a great way to stay on top of your financial situation. Given how slowly traditional amortization schedules pay down debt, steps like voluntarily repaying loans more quickly than its terms call for payments can save you a ton in interest charges over the long run.

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