1. What is the Amortization Formula?

The amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. This Bankrate-style calculator helps borrowers understand their payment obligations.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( PMT \) — Monthly payment (USD)
• \( PV \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for the time value of money, calculating equal payments that completely pay off the loan over its term.

3. Importance of Amortization Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It shows how much goes toward principal vs. interest each month.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates principal and interest only. A complete mortgage payment may include escrow for taxes and insurance.

Q2: How does extra principal payment affect the loan?
A: Additional principal payments reduce total interest paid and may shorten the loan term.

Q3: Why are early payments mostly interest?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q4: 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.

Q5: How accurate is this calculator?
A: This provides standard amortization results. For exact figures, consult your lender as terms may vary.