Amortization Calculator

It may come as a surprise but, you could use this calculator for more than just mortgages. Student loans and personal loans can also be amortizing loans too.

With a few simple details, you can work out a loan schedule, monthly payments, and your loan affordability.

If you're creating your loan amortization table or wondering if it's within your budget to borrow money, this is the best tool for it.

The calculator can provide details about your interest fees, along with other information about the loan.

Getting Started

To use the calculator, you'll need either the loan amount or monthly payment. Also, you have to specify the interest rate and loan term for accurate results.

Once you enter this information, it will calculate your payment schedule and the total cost of the loan.

The calculator also offers graphs, so you have a better idea of your interest and principal payments through the term.

Before using an amortization calculator, it's helpful to grasp the basics of a loan. When you take out a loan, you're borrowing money from your lender.

The loan can be secured or unsecured. The first type requires collateral to secure the repayment. This collateral can be property or money. The most common secured loans are mortgages.

Here many lenders take the property as collateral. Your lender loans you the money in return for your repayment. You'll repay them the loan amount with interest and other charges.

The amount they lend you is the principal of the loan. The terms of the loan such as interest rate and length can define how much you will pay each month.

In the simplest terms, loan amortization is the process of dividing your payments equally across a particular length of time.

Every time you make a loan payment, it is split into two. The lender applies part of your money to the interest fee. The second portion goes to repayment of the money you borrowed.

With an amortizing loan, the largest portion of your first payments will go to pay interest. This will change as you keep repaying your loan.

An amortization table will break down all the payments you'll have to make on the loan. It will include the balances and amounts for each period.

Mortgages aren't the only amortized loans. Other examples of these loans are student loans, car loans, and personal loans.

Loan amortization doesn't apply to loans with interest-only payments, balloon mortgages or negative amortizing loans.

Your loan payment will depend on a few factors. For calculating the payment for an amortized loan, lenders use your loan term, amount, interest, and any additional fees.

Remember that the term of the loan is the total months for full repayment.

Calculating your monthly payment is complex, so it's best to use an amortization calculator to get an accurate breakdown.

The Loan Payment Formula

For those that want to calculate by hand, you'll need to use a formula that divides the loan amount by the discount factor raised to an exponent.

The discount factor formula is:

Loan Payment = [(1 + i) ⁿ ] - 1 / [ i (1 + i) ⁿ ]

Here:

• i is the periodic interest rate
• n is the number of periodic payments

How It Works

To calculate the value of i, you'll have to express your interest in decimal form and divide it by 12 monthly payments per year.

To obtain the value of n, you have to multiply the term of the loan by 12 to obtain the number of monthly payments.

Example

Let's say you took out a loan for 30 years at 6 percent.

The value of i would equal 0.06 divided by 12. The result would be 0.005.

To obtain the value of n, you have to multiply 30 by 12. In this example, the number of periodic payments (n) equals 360.

To determine the loan payment, you'll have to substitute these values in the discount factor formula.

The exact calculation may vary depending on your lender and additional fees. To get familiar with the concept, you can create your table using our amortizing loan calculator.

Doing this can give you valuable insight into how much loan you can afford before you approach a lender. Whether or not you get approved for the loan depends on several qualifying factors, however.

Loan amortization affects your loan by setting the rate which the principal is repaid during the life of the loan.

When you calculate your loan amortization or take a look at your amortization table, you'll notice that most of your payments initially go toward interest.

The Loan Term

The length of your loan will determine how much your loan will cost you after repaying the principal, interest and any additional fees.

An example is how a short-term loan will have a higher payment but, you'll be paying less interest.

This translates into a cheaper loan. A long-term loan might work better with your current monthly income but, it may cost you more.

You're going to be repaying your loan for a longer time. Therefore you can end up paying more in interest and other fees.