1. What is a Mortgage Amortization Calculator?

Definition: This calculator shows how each mortgage payment is split between principal and interest over the life of the loan.

Purpose: It helps borrowers understand how much of their payment goes toward paying down the loan versus paying interest.

2. How Does the Calculator Work?

The calculator uses the standard amortization formulas:

Where:

• \( I_k \) — Interest portion of payment for period k (USD)
• \( P_k \) — Principal portion of payment for period k (USD)
• \( B_k \) — Remaining balance after payment k (USD)
• \( r \) — Monthly interest rate (decimal)
• \( M \) — Total monthly payment (USD)

Explanation: Each payment first covers the interest due on the remaining balance, with the remainder applied to principal.

3. Importance of Amortization

Details: Understanding amortization helps borrowers see how equity builds over time and the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in years. The calculator will show the monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does more of my payment go to interest early in the loan?
A: Because interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q2: How can I pay less interest over the life of the loan?
A: Make extra principal payments, choose a shorter loan term, or secure a lower interest rate.

Q3: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing, while APR includes fees and other loan costs.

Q4: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the time before you build substantial equity.

Q5: Can I see how extra payments would affect my loan?
A: Yes, try our Mortgage Extra Payment Calculator to see the impact of additional payments.