1. What is a Mortgage Amortization Schedule?

Definition: An amortization schedule shows the breakdown of each payment into interest and principal components over the life of a loan.

Purpose: It helps borrowers understand how much of each payment goes toward interest vs. principal, and how the loan balance decreases over time.

2. How Does the Calculator Work?

The calculator uses these formulas for each payment period:

Where:

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

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

3. Importance of Amortization Schedules

Details: Understanding amortization helps with financial planning, shows the true cost of borrowing, and reveals how extra payments can shorten loan terms.

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 early payments have more interest?
A: Interest is calculated on the remaining balance, which is highest at the beginning of the loan term.

Q2: How can I pay less interest overall?
A: Make extra principal payments to reduce the balance faster and shorten the loan term.

Q3: What's the difference between term and amortization period?
A: They're usually the same for fixed-rate mortgages, but may differ for other loan types.

Q4: How is the monthly payment calculated?
A: Using the formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P=principal, r=monthly rate, n=number of payments.

Q5: Does this work for other loans besides mortgages?
A: Yes, it works for any fixed-rate, fully-amortizing loan (car loans, personal loans, etc.).