Loan repayment and amortisation calculator

How the loan repayment calculator works

On capital and interest we apply the standard amortising formula, so the loan is fully repaid over the term and the monthly payment stays level. On interest only the monthly payment is just the interest on the full loan, which stays outstanding at the end. We also break out the first year, because early payments are mostly interest, which matters for cash flow and tax planning on a commercial loan.

The capital and interest monthly payment is the loan multiplied by the monthly rate, divided by one minus one plus the monthly rate to the power of minus the number of months. The monthly rate is the annual rate divided by twelve. For the first year we step through twelve months, charging interest on the falling balance and treating the rest of each payment as capital. On interest only the first year interest is the monthly payment multiplied by twelve, with no capital repaid.

Why amortisation matters on a commercial loan

Amortisation is the gradual repayment of capital over the term. In the early years most of each payment is interest because the balance is high, so a warehouse mortgage pays down less capital in year one than in year ten. Owner-occupiers often choose capital and interest to own the unit outright, while investors lean to interest only to keep the monthly cost down. To model the deposit on a property purchase, use our commercial mortgage calculator.

Worked example

On a 500,000 pound loan at 8 percent over 10 years on capital and interest, the monthly payment is roughly 6,070 pounds, the total interest is about 228,000 pounds and the total repayable is around 728,000 pounds. In the first year roughly 39,000 pounds is interest and about 33,000 pounds clears capital. On interest only at the same rate the monthly cost falls to about 3,330 pounds, with the full 500,000 pounds still outstanding.