1. What is Bankrate Amortization?

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

Purpose: It helps homeowners and buyers understand the true cost of a mortgage and how equity builds over time.

2. How Does Amortization Work?

The calculator uses these key formulas:

Where:

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

Explanation: Early payments are mostly interest, with the principal portion increasing over time as the balance decreases.

3. Importance of Amortization

Details: Understanding amortization helps with financial planning, refinancing decisions, and tax deductions for mortgage interest.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is how amortization works - interest is calculated on the current balance, which is highest at the beginning.

Q2: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or refinance at a lower rate when possible.

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

Q4: How does a 15-year compare to a 30-year mortgage?
A: A 15-year loan has higher monthly payments but much less total interest paid over the life of the loan.

Q5: Can I see the full amortization schedule?
A: Yes, the complete schedule showing each payment's principal/interest breakdown is available upon calculation.