1. What is the Amortization Calculator?

The Amortization Calculator helps you understand how your mortgage payments are divided between principal and interest over the life of your loan. It shows the gradual shift from interest-heavy payments to principal-heavy payments as the loan matures.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula calculates the fixed monthly payment required to fully repay a loan over its term, accounting for both principal and interest.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers see the true cost of a loan, plan for refinancing, and make informed decisions about extra payments to reduce total interest costs.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does making extra payments affect my loan?
A: Extra payments directly reduce principal, which decreases total interest paid and may shorten the loan term.

Q2: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes interest plus other loan fees, representing the true annual cost.

Q3: Why are early payments mostly interest?
A: With a large principal balance early in the loan, more interest accrues each month under the amortization formula.

Q4: How does loan term affect total interest?
A: Shorter terms mean higher monthly payments but significantly less total interest paid over the life of the loan.

Q5: Can I use this for other types of loans?
A: While designed for mortgages, the calculator works for any fixed-rate, fully amortizing loan (car loans, personal loans, etc.).