1. What is Mortgage Amortization?

Mortgage amortization is the process of paying off a loan over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( t \) — Number of months
• \( M \) — Monthly payment ($)

Explanation: The formula calculates the remaining balance after t months of payments, accounting for both the growth of the principal due to interest and the reduction from payments.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers see how much of each payment goes toward principal vs. interest, plan for refinancing, and calculate remaining balances for loan modifications.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in months, and monthly payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is monthly payment calculated?
A: Monthly payment can be calculated using: \( M = P \frac{r(1 + r)^t}{(1 + r)^t - 1} \)

Q2: What happens if I make extra payments?
A: Extra payments reduce the principal faster, saving interest and potentially shortening the loan term.

Q3: Why does early amortization favor interest?
A: Early in the loan, the outstanding balance is higher, so more interest accrues each month.

Q4: How does refinancing affect amortization?
A: Refinancing resets the amortization schedule based on new loan terms, which may extend or shorten the payoff timeline.

Q5: What's the difference between term and amortization period?
A: For fixed-rate mortgages they're the same, but adjustable-rate mortgages may have a longer amortization period than the initial fixed-rate term.