Loan Amortization Calculator Bret Whissel

Loan Amortization Formula:

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

Monthly Payment (PMT):

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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 Bret Whissel's amortization formula:

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

Where:

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

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

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward interest versus principal, plan for refinancing, and understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes additional fees and costs associated with the loan.

Q2: How does extra principal payment affect my loan?
A: Extra payments reduce the principal faster, decreasing total interest paid and potentially shortening the loan term.

Q3: Why are early payments mostly interest?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q4: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q5: Can I use this for any type of loan?
A: This works for fixed-rate mortgages, auto loans, and personal loans. It doesn't apply to credit cards or adjustable-rate loans.