What is Amortization?

Amortization is the process of gradually paying off a debt, such as a mortgage or car loan, through regular payments over a set period. In an amortizing loan, each payment consists of both principal and interest. Initially, a larger portion of each payment goes towards interest, but as the loan balance decreases over time, more of each payment is applied to the principal.

How to Use the Amortization Calculator?

1. Enter the Loan Amount: Input the total amount you’re borrowing in the “Loan Amount” field. This is the principal of your loan.

2. Input the Annual Interest Rate: Enter the annual interest rate as a percentage in the “Annual Interest Rate” field. For example, if your rate is 4.5%, you would enter 4.5.

3. Specify the Loan Term: In the “Loan Term” field, enter the number of years over which you’ll be repaying the loan. For instance, a typical mortgage might be 30 years, while a car loan might be 5 years.

4. Click “Calculate”: After entering all the required information, click the “Calculate” button to generate your results. The calculator will display your monthly payment amount, the total amount you’ll pay over the life of the loan, and the total interest you’ll pay.

5. Examine the Amortization Schedule: Below the summary results, you’ll find a detailed amortization schedule. This table shows how each payment is broken down month by month, displaying the amount going towards principal and interest, as well as your remaining balance after each payment.

6. Experiment with Different Scenarios: Try adjusting the loan amount, interest rate, or term to see how these changes affect your payments and total interest paid. This can help you make informed decisions about which loan terms might be best for your financial situation.

While this calculator provides a good estimate, it doesn’t account for factors like property taxes, insurance, or private mortgage insurance (PMI) that might be included in your actual loan payments. Always consult with a financial advisor or lender for the most accurate and personalized loan information.