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Amortization Formula:
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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 the standard calculation used for mortgages, car loans, and other installment loans.
The calculator uses the amortization formula:
Where:
Explanation: This formula calculates the fixed payment that pays off the loan exactly over the specified term, with each payment covering both interest and principal reduction.
Details: Knowing your exact monthly payment helps with budgeting, comparing loan offers, understanding affordability, and making informed financial decisions when taking on debt.
Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.
Q1: What's included in the monthly payment?
A: This calculation includes principal and interest only. Additional costs like property taxes, insurance, or PMI are not included.
Q2: How does interest rate affect the payment?
A: Higher interest rates significantly increase monthly payments. A 1% rate increase can raise payments by 5-10% depending on the loan term.
Q3: What's the difference between 15-year and 30-year mortgages?
A: 15-year loans have higher monthly payments but much less total interest paid. 30-year loans have lower payments but more total interest over the life of the loan.
Q4: Can I calculate payments for different compounding periods?
A: This calculator assumes monthly compounding, which is standard for most consumer loans. Other compounding periods require different formulas.
Q5: How accurate is this calculation?
A: This provides the exact mathematical payment. Actual lender quotes may include small variations due to rounding or specific lender policies.