1. What is the Bankrate Amortization Formula?

The Bankrate amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. It's the standard calculation used for most fixed-rate mortgages.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

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

Explanation: The formula accounts for the time value of money, calculating equal payments that will pay off the loan plus interest over the specified term.

3. Importance of Loan Amortization

Details: Understanding your amortization helps in financial planning, comparing loan offers, and determining how much of each payment goes toward principal vs. interest.

4. Using the Calculator

Tips: Enter the principal 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 a higher interest rate affect my payment?
A: Higher rates increase both your monthly payment and total interest paid over the life of the loan.

Q2: What's the difference between term and amortization period?
A: They're typically the same - the time it takes to pay off the entire loan with regular payments.

Q3: How can I pay less interest overall?
A: Choose a shorter loan term or make additional principal payments when possible.

Q4: Why does early payment go mostly toward interest?
A: Interest is calculated on the outstanding balance, which is highest at the start of the loan.

Q5: Does this work for adjustable-rate mortgages (ARMs)?
A: This calculates fixed-rate payments only. ARM payments change when rates adjust.