1. What is Home Loan Amortization?

Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment goes toward both principal and interest, with the interest portion decreasing over time while the principal portion increases.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — 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 compound interest.

3. Importance of Amortization Calculation

Details: Understanding your amortization helps with budgeting, shows the true cost of borrowing, and illustrates how much of each payment goes toward principal vs. interest.

4. Using the Calculator

Tips: Enter the loan amount in dollars, 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 larger down payment affect my loan?
A: A larger down payment reduces your principal amount, resulting in lower monthly payments and less total interest paid.

Q2: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing the principal, while APR includes additional fees and costs associated with the loan.

Q3: How can I pay less interest overall?
A: You can pay less interest by choosing a shorter loan term, making extra principal payments, or securing a lower interest rate.

Q4: Why does most of my early payment go toward interest?
A: In the early years, your balance is highest, so interest charges are largest. As you pay down principal, the interest portion decreases.

Q5: Should I refinance my mortgage?
A: Refinancing may make sense if you can get a significantly lower rate, but consider closing costs and how long you plan to stay in the home.