1. What is the Amortization Formula?

The amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. It's widely used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( PMT \) — Monthly payment amount ($/month)
• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula calculates the fixed payment that pays off the loan exactly over the term, with each payment covering both interest and principal reduction.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is essential for budgeting, loan comparison, and financial planning. It helps borrowers understand their repayment obligations and lenders assess affordability.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between principal and interest?
A: Principal is the original loan amount borrowed, while interest is the cost of borrowing that money over time.

Q2: How does loan term affect monthly payments?
A: Longer loan terms result in lower monthly payments but higher total interest paid over the life of the loan.

Q3: What is amortization?
A: Amortization is the process of paying off a debt through regular payments over time, where each payment covers both interest and principal.

Q4: Are there any additional costs not included?
A: This calculation doesn't include insurance, taxes, or fees that may be part of your total monthly payment.

Q5: Can I use this for different payment frequencies?
A: This calculator assumes monthly payments. For bi-weekly or other frequencies, adjustments to the formula are needed.