1. What is Loan Amortization?

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 principal portion increasing over the life of the loan.

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)
• \( n \) — Number of payments (loan term in months)

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 Calculation

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:

1. Select which variable you want to calculate
2. Enter the other three known values
3. All values must be positive numbers
4. For interest rate, enter the monthly rate (annual rate ÷ 12)

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual interest rate to monthly?
A: Divide the annual rate by 12 (e.g., 6% annual = 0.06/12 = 0.005 monthly).

Q2: Why does the calculator show more periods than my loan term?
A: The calculator provides the exact mathematical solution, which may include partial periods. Round up to whole months for practical purposes.

Q3: Can I use this for bi-weekly payments?
A: Yes, but you'll need to adjust the rate (annual rate ÷ 26) and term (years × 26).

Q4: How accurate is the interest rate calculation?
A: The numerical method provides close approximation (within 0.0001) but may not match exact financial institution calculations.

Q5: What if I want to include extra payments?
A: This calculator assumes fixed regular payments. For extra payments, you'd need a full amortization schedule.