Amortization Calculator
Sponsored Links
Amortization refers to a loan being paid off in regular installments over the payment period, as opposed to other types of loan repayment structures where the borrower may pay a lower amount initially and then a higher amount after a number of years. Thus, an amortization calculator would indicate every monthly payment to be made, all of which would be the same amount, and it would show which portion of the monthly payment goes toward the interest, which portion goes toward the principal, and what balance remains after each payment.
Sponsored Links
Amortization loans are helpful because they allow the principal to be paid down gradually, so that there is less risk of damaged credit as compared to loans where the bulk of the principal is due at once and the borrower might be less able to pay that larger amount. One drawback of amortized loans is that they often cause the borrower to pay a great deal more than the original loan amount. This is because the principal remains high for much of the repayment period, which means that large amounts of interest accrue each month until most of the principal has been paid down.
Mortgages are the most common types of amortization loans. An amortization calculator for a typical mortgage would let the borrower know exactly how much of each monthly payment paid down the interest and how much paid down the principal.
For example, on a $250,000 mortgage loan due over 30 years at a fixed 4.5% interest rate, each monthly payment would be $1,266.71. The first several months’ payments would be split between the interest and principal as follows:
| Total Monthly Payment |
Toward Interest |
Toward Principal |
Remaining Balance |
| $1,266.71 |
$937.50 |
$329.21 |
$249,670.78 |
| $1,266.71 |
$936.27 |
$330.45 |
$249,340.33 |
| $1,266.71 |
$935.03 |
$331.69 |
$249,008.64 |
This trend would continue until the amount paid toward the principal would exceed the amount paid toward the interest during the 15th year of the repayment period. For most of the payments during the final two years, less than $100 would be paid toward the interest each month, and most of the $1,266.71 would then go toward the principal, until the entire amount has been repaid.
There are numerous amortization calculator programs and websites where you can enter the loan amount, loan period, and interest rate to determine how much of your payment will be used to pay down the principal.
Sponsored Links