Amortization Calculator

The Amortization repayment model factors varying amounts of both Interest and principal into every installment, though the total amount of each payment is the same.

An amortization calculator can also reveal the exact dollar amount that goes towards Interest and the exact dollar amount that goes towards principal out of each individual payment. The Amortization Schedule is a table delineating these figures across the duration of the loan in chronological order.

THE FORMULA

The calculation used to arrive at the periodic payment amount assumes that the first payment is not due on the first day of the loan, but rather one full payment period into the Loan .

While normally used to solve for A, it can be used to solve for any single variable in the equation provided that all other variables are known.

The formula is:

A \;= \;P\;rac{i(1 + i)^n}{(1 + i)^n - 1}

Where:

A = periodic payment amount

P = amount of (be sure to subtract any down-payments first!)

i= periodic Interest rate

n= total number of payments (for a 30-year loan with monthly payments, n = 30 years x 12 months = 360)

AMORTIZATION CALCULATORS AND MORTGAGES

Many websites offer free amortization calculators for their visitors, specifically ones who are considering taking out a Mortgage .

If you already know what your maximum payment amount is (usually based on your income, among other considerations), you can run the amortization calculation backwards to determine how much principal you can afford to borrow.

Run this calculation using the same maximum monthly payment and different Interest rates before meeting with a mortgage broker. This way, you know ahead of time how much principal you can afford as soon as possible.

Remember that a basic amortization calculator only takes into account the costs involved with repaying the Interest and principal on a Loan . Other costs involved with home ownership may lower the amount of money you have available to cover periodic payments. These may include property tax, homeowner's insurance, and condo association fees, among others.

OTHER USES

While typically used for mortgage-related purposes, you can also use an amortization calculator to analyze other debts, including short-term loans and credit cards.

Example: Calculate the monthly payment amount necessary to pay off a credit card in full in one year (12 payments), where P=current balance, i=card's interest rate, and n=12.

EXTERNAL LINKS