1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. A portion of each payment goes toward the principal balance and a portion goes toward interest costs.

2. How Does the Calculator Work?

The calculator uses the loan amortization formula:

Where:

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

Explanation: The formula calculates the fixed monthly payment required to pay off the loan over its term, accounting for both principal and interest.

3. Importance of Monthly Payment Calculation

Details: Calculating the exact monthly payment helps borrowers understand their financial commitment, compare loan options, and budget effectively for mortgage payments.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate in percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's included in the monthly payment?
A: This calculation includes principal and interest. Real mortgage payments may also include property taxes, insurance, and PMI.

Q2: 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.

Q3: 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.

Q4: Can I pay extra to reduce my loan term?
A: Yes, additional principal payments can shorten your loan term and reduce total interest paid.

Q5: How accurate is this calculator?
A: It provides the exact principal+interest payment, but actual mortgage payments may vary slightly due to rounding or additional fees.