An amortization calculator is used to determine the periodic payment amount due on a loan (typically a mortgage), based on the amortization process.
The amortization repayment model factors varying amounts of both interest and principal into every installment, though the total amount of each payment is the same.
An amortization calculator can also reveal the exact dollar amount that goes towards interest and the exact dollar amount that goes towards principal out of each individual payment. The amortization schedule is a table delineating these figures across the duration of the loan in chronological order.
The Formula
The calculation used to arrive at the periodic payment amount assumes that the first payment is not due on the first day of the loan, but rather one full payment period into the loan.
While normally used to solve for A, it can be used to solve for any single variable in the equation provided that all other variables are known.
The formula is:
Where:
A = periodic payment amount
P = amount of principal (be sure to subtract any down-payments first!)
i= periodic interest rate
n= total number of payments (for a 30-year loan with monthly payments, n = 30 years x 12 months = 360)
Other uses
While often used for mortgage-related purposes, you can also use an amortization calculator to analyze other debt, including short-term loans, student loans and credit cards.
Example: Calculate the monthly payment amount necessary to pay off a credit card in full in one year (12 payments), where P=current balance, i=card's interest rate, and n=12.
External links
- Amortization Schedule Calculator
- A Variety of Loan Calculators
- Simple Loan Calculator
Categories: Accounting software | Basic financial concepts | Real estate
