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Loan Amortization Formula:
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Loan amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment consists of both principal and interest, with the interest portion decreasing over time while the principal portion increases.
The calculator uses the standard amortization formula:
Where:
Explanation: The formula calculates the fixed monthly payment required to fully repay a loan with interest over the specified term.
Details: Understanding loan amortization helps borrowers see how much of each payment goes toward interest versus principal, plan their finances better, and make informed decisions about loan terms and prepayment options.
Tips: Enter the principal amount in CAD, annual interest rate as a percentage (without the % sign), and loan term in years. The calculator will provide monthly payment, total payment, and total interest amounts.
Q1: What is the typical mortgage rate in Ontario?
A: As of 2024, typical mortgage rates in Ontario range from 4.5% to 6.5% for fixed-rate mortgages, depending on term length and lender.
Q2: How does amortization affect total interest paid?
A: Longer amortization periods result in lower monthly payments but significantly more total interest paid over the life of the loan.
Q3: What is the maximum amortization period in Canada?
A: For insured mortgages, the maximum is 25 years. For uninsured mortgages, some lenders offer up to 30 years.
Q4: Are there prepayment options in Ontario?
A: Most Ontario mortgages allow annual prepayment of 10-20% of the original principal without penalty.
Q5: How often are payments typically made?
A: Most Canadian mortgages use monthly payments, though some lenders offer accelerated bi-weekly or weekly options.