Loan Amortization By Payment Amount

Amortization Formula:

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

Maximum Loan Amount (P):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Loan Amortization?

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 and the principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

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

Where:

\( P \) — Principal loan amount
\( PMT \) — Monthly payment amount
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (term in years × 12)

Explanation: This formula calculates the maximum loan amount you can afford based on your desired monthly payment, interest rate, and loan term.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers determine how much they can afford to borrow, how much interest they'll pay over the life of the loan, and how payment changes affect the loan terms.

4. Using the Calculator

Tips: Enter your desired monthly payment amount, annual interest rate, and loan term in years. The calculator will determine the maximum loan amount you can afford with these parameters.

5. Frequently Asked Questions (FAQ)

Q1: How does interest rate affect the loan amount?
A: Higher interest rates reduce the amount you can borrow for a given payment, as more of each payment goes toward interest rather than principal.

Q2: What's the difference between this and a payment calculator?
A: This calculator works backward from payment to principal, while payment calculators work from principal to payment.

Q3: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For complete budgeting, you should consider additional costs like property taxes and insurance.

Q4: How accurate is this calculation?
A: This provides a precise mathematical calculation, but actual loan offers may vary based on lender fees and other factors.

Q5: Can I use this for different loan types?
A: This works best for fixed-rate loans. Adjustable-rate loans would require more complex calculations.