1. What is the Loan Amortization Formula?

The loan amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest. This version is based on the Brett Whissel formula from Florida State University.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

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

Explanation: The formula accounts for the time value of money, calculating equal payments that cover both interest and principal over the loan term.

3. Importance of Loan Amortization

Details: Understanding amortization helps borrowers see how much of each payment goes toward principal vs. interest, plan for refinancing, and compare loan options.

4. Using the Calculator

Tips: Enter the principal amount in dollars, 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: How does extra principal payment affect amortization?
A: Extra payments reduce the principal faster, decreasing total interest paid and potentially shortening the loan term.

Q2: What's the difference between interest rate and APR?
A: APR includes both interest rate and other loan fees, providing a more complete cost picture.

Q3: Why are early payments mostly interest?
A: With more principal outstanding early on, more interest accrues each month under compound interest calculations.

Q4: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q5: Are there loans that don't amortize?
A: Yes, interest-only loans and balloon loans have different payment structures that don't fully amortize.