Amortization Calculator

Amortization Formula:

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

Monthly Payment:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Amortization Formula?

The amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. It's the standard calculation used for most mortgage and installment loans.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

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

Where:

$ P $ — Principal loan amount ($)
$ r $ — Monthly interest rate (annual rate ÷ 12 ÷ 100)
$ n $ — Total number of payments (term in years × 12)

Explanation: The formula calculates the fixed payment amount that will completely pay off the loan, including interest, by the end of the term.

3. Importance of Amortization Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It shows how much of each payment goes toward principal vs. interest, which changes over the life of the loan.

4. Using the Calculator

Tips: Enter the loan 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: What is included in the monthly payment?
A: The calculated payment includes principal and interest only. It does not include property taxes, insurance, or other fees that may be part of a complete mortgage payment.

Q2: How does the interest rate affect the payment?
A: Higher interest rates result in higher monthly payments. Even a small rate difference can significantly impact the total payment over the loan term.

Q3: What is an amortization schedule?
A: An amortization schedule shows the breakdown of each payment into principal and interest components, and how the loan balance decreases over time.

Q4: Can I calculate payments for different compounding periods?
A: This calculator assumes monthly compounding, which is standard for most mortgages and installment loans.

Q5: How does a longer loan term affect payments?
A: Longer terms result in lower monthly payments but higher total interest paid over the life of the loan.