1. What is Amortization Payment?

The amortization payment is the fixed periodic payment required to pay off a loan over its term, including both principal and interest components. It's commonly used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the amortization payment formula:

Where:

• \( PMT \) — Periodic payment amount
• \( PV \) — Present value (loan amount)
• \( r \) — Periodic interest rate (annual rate divided by payments per year)
• \( n \) — Total number of payments (term in years multiplied by payments per year)

Explanation: The formula calculates the fixed payment needed to completely pay off a loan over its term, accounting for compound interest.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers know exactly what their payments will be, how much interest they'll pay over the life of the loan, and how payments are split between principal and interest.

4. Using the Calculator

Tips: Enter loan amount in USD, annual interest rate as a percentage, loan term in years, and select payment frequency. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest in payments?
A: Early in the loan, most of each payment goes toward interest. Over time, more goes toward principal. This is called amortization.

Q2: How does payment frequency affect total interest?
A: More frequent payments (bi-weekly vs monthly) reduce total interest paid and shorten the loan term because you're paying principal faster.

Q3: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance after each payment.

Q4: How do extra payments affect amortization?
A: Extra payments directly reduce principal, which reduces total interest and may shorten the loan term.

Q5: What's the difference between fixed and variable rate amortization?
A: Fixed rate payments stay the same; variable rate payments change when the interest rate changes, requiring recalculation.