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Amortization Calculator Mortgage Loan

Mortgage Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

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1. What is Mortgage Amortization?

Mortgage amortization is the process of paying off a loan with regular payments over time. Each payment covers both principal and interest, with the interest portion decreasing and principal portion increasing over the loan term.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will completely pay off the loan by the end of the term.

3. Importance of Mortgage Calculation

Details: Understanding your mortgage payment helps with budgeting, comparing loan options, and making informed decisions about home affordability and refinancing.

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: What's included in a mortgage payment?
A: This calculator shows principal and interest. Actual payments may include property taxes, insurance, and PMI if applicable.

Q2: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q3: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal. APR includes interest plus other loan fees, representing the true annual cost.

Q4: How often are mortgage payments compounded?
A: Most mortgages compound interest monthly, though payments are typically made monthly as well.

Q5: Can I pay off my mortgage early?
A: Yes, but check for prepayment penalties. Extra payments reduce principal and can significantly shorten the loan term.

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