April 4, 2023

Amortization Calculator: How to Calculate Mortgage Loan Amortization

Calculate a loan amortization repayment schedule and understand why it's an important planning step when taking out a loan

Loan Amortization Calculator


What is a Loan Amortization Calculator?

A loan amortization calculator is a tool that helps borrowers understand what they'll be paying back over time. By inputting the loan amount, interest rate, and repayment term, borrowers can see a detailed breakdown of their loan repayment schedule. This includes the monthly payment amount, the total interest paid over the life of the loan, and the principal balance remaining at the end of each payment period.

Why is Calculating Loan Amortization Important?

Loan amortization calculators are used by borrowers to understand the repayment schedule for their loans. This can help borrowers make informed decisions about their finances and budget for loan payments. By knowing the monthly payment amount and how much interest they will be paying, borrowers can plan for their loan payments and avoid default or missed payments.

How is the Loan Amortization Schedule Calculated?

Loan amortization calculators use a formula called the amortization schedule to calculate loan payments. The formula takes into account the loan amount, interest rate, and repayment term to calculate the monthly payment amount. This payment amount is then broken down into principal and interest payments over the life of the loan.

The formula used to calculate loan payments is:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

  • M = Monthly payment amount
  • P = Loan amount
  • i = Interest rate (per month)
  • n = Total number of payments

To calculate the amortization schedule, the monthly payment amount is first calculated using the above formula. The first payment is then broken down into principal and interest payments based on the interest rate and remaining principal balance. The remaining principal balance is then updated based on the principal payment made each month. This process is repeated for each payment period until the loan is fully paid off.

Conclusion

A loan amortization calculator is a powerful tool that can help borrowers understand the repayment schedule for their loans. By inputting the loan amount, interest rate, and repayment term, borrowers can see a detailed breakdown of their loan repayment schedule. This can help borrowers make informed decisions about their finances and budget for loan payments. If you're considering taking out a loan, be sure to use a loan amortization calculator to understand your repayment schedule.

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