1. What is a Mortgage Amortization Calculator?

Definition: This calculator shows how each mortgage payment is split between interest and principal, and how the loan balance decreases over time.

Purpose: It helps borrowers understand the true cost of their mortgage and how much equity they build with each payment.

2. How Does the Calculator Work?

The calculator uses these formulas for each payment period:

Where:

• \( I_k \) — Interest portion of payment k
• \( P_k \) — Principal portion of payment k
• \( B_k \) — Remaining balance after payment k
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( M \) — Fixed monthly payment amount
• \( P \) — Original loan amount (principal)

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

3. Understanding Amortization

Details: Amortization is the process of spreading out loan payments over time. Each payment reduces the principal while covering the interest accrued.

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 total interest paid.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go to interest?
A: Interest is calculated on the current 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, or choose a shorter loan term.

Q3: What happens if I make an extra payment?
A: Extra payments directly reduce principal, saving interest and potentially shortening the loan term.

Q4: How does the interest rate affect my payments?
A: Higher rates mean more of each payment goes to interest, slowing principal reduction.

Q5: What's the difference between term and amortization period?
A: They're usually the same - the time it takes to fully pay off the mortgage with regular payments.