1. What is a Mortgage Loan 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 their payments are applied and how much interest they'll pay over time.

2. How Does the Calculator Work?

The calculator uses these amortization 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: Each payment first covers the interest due, with the remainder applied to principal. As principal decreases, less goes to interest each month.

3. Importance of Amortization

Details: Understanding amortization helps borrowers see the true cost of loans, plan for refinancing, and make informed decisions about extra payments.

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 how it's divided between principal and interest.

5. Frequently Asked Questions (FAQ)

Q1: Why does early payment go mostly to interest?
A: Interest is calculated on the outstanding balance, which is highest at the start of the loan.

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

Q3: What's the difference between term and amortization period?
A: They're usually the same for mortgages - the time to fully pay off the loan.

Q4: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule, typically extending the loan term unless you refinance to a shorter term.

Q5: Why does my payment stay the same if principal and interest change?
A: Mortgages use fixed payments (except ARMs). The changing allocation between principal and interest maintains this fixed payment.