Mortgage Calculator With Amortization

Amortization Formulas:

\[ I_k = B_{k-1} \times r \] \[ P_k = M - I_k \] \[ B_k = B_{k-1} - P_k \]

Monthly Payment:

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1. What is a Mortgage Calculator With Amortization?

Definition: This calculator computes your monthly mortgage payment and provides a detailed amortization schedule showing how each payment is split between principal and interest.

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

2. How Does the Calculator Work?

The calculator uses these amortization formulas:

\[ I_k = B_{k-1} \times r \] \[ P_k = M - I_k \] \[ B_k = B_{k-1} - P_k \]

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 outstanding balance, with the remainder applied to reduce the principal.

3. Importance of Amortization

Details: Understanding amortization helps you see how much of your payment builds equity versus paying interest, and how extra payments can shorten your loan term.

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 over the life of the loan.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go to interest?
A: Early in the loan, your balance is highest so more interest accrues. As the balance decreases, more of each payment goes to principal.

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 interest rate and APR?
A: The interest rate is your borrowing cost, while APR includes fees and other loan costs to show the true annual cost.

Q4: How does changing the loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms lower monthly payments but increase total interest.

Q5: Are property taxes and insurance included?
A: No, this calculator shows only principal and interest. Your actual payment may include escrow for taxes and insurance.