Home
Back
Amortization Formula:
| From: | To: |
An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and interest that comprises each payment until the loan is paid off at the end of its term. For term promissory notes, this schedule helps both lenders and borrowers understand how payments are applied.
The calculator uses the amortization formula:
Where:
Explanation: The principal portion of each payment is calculated by subtracting the interest from the total payment amount. This shows how much of each payment goes toward reducing the loan balance.
Details: Understanding amortization is crucial for financial planning, tax purposes, and assessing the true cost of borrowing. It helps borrowers see how much interest they're paying over the life of the loan.
Tips: Enter the fixed payment amount, interest per period, and number of payment periods. All values must be positive numbers. The calculator will generate a complete schedule showing the breakdown of each payment.
Q1: What's the difference between term and amortizing loans?
A: Term loans typically have fixed payments where the principal is paid at maturity, while amortizing loans pay down principal with each payment.
Q2: How is interest per period calculated?
A: Interest per period is typically calculated as the outstanding balance multiplied by the periodic interest rate.
Q3: What if my payments vary?
A: This calculator assumes fixed payments. For variable payment loans, a more complex calculator would be needed.
Q4: Can I use this for mortgage calculations?
A: This is a simplified calculator. Mortgages typically require more complex amortization calculations.
Q5: How does extra principal payment affect amortization?
A: Extra principal payments reduce the loan balance faster and decrease total interest paid, but this calculator assumes fixed payments.