Home Loan Amortization Schedule

Loan Payment Formula:

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

Monthly Payment (PMT):

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1. What is a Home Loan Amortization Schedule?

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and interest that comprises each payment until the loan is paid off at the end of its term. For home loans, this schedule helps borrowers understand how much of each payment goes toward the principal versus interest.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

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

Where:

\( PMT \) — Monthly payment amount
\( P \) — Principal loan amount
\( r \) — Monthly interest rate (annual rate divided by 12)
\( n \) — Number of payments (loan term in years multiplied by 12)

Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, accounting for compound interest.

3. Importance of Amortization Schedule

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

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate in percentage, and loan term in years. The calculator will show your monthly payment and generate a complete amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is how amortization works - early payments have more interest because the outstanding balance is higher. As you pay down principal, the interest portion decreases.

Q2: How can I pay less interest overall?
A: Making extra principal payments reduces the loan balance faster, which reduces total interest paid over the life of the loan.

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

Q4: Does a longer term always mean higher total interest?
A: Yes, stretching payments over more time means more interest payments, even if the monthly payment is lower.

Q5: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the term and changing the interest rate, which affects how payments are allocated.