Amortization Calculator
Amortization Calculator
An amortization calculator is a tool used to determine the breakdown of payments for a loan, typically a mortgage or car loan, into equal amounts over a specified period of time. The calculator takes into account the principal amount, the interest rate, and the length of the loan, and calculates the amount of each payment. The formula for calculating the amortization payment is:
A = (P * r) / (1 – (1 + r)^(-n))
Where:
A = amortization payment
P = principal amount
r = interest rate per period
n = total number of periods
The formula for calculating the interest payment is:
I = P * r
Where:
I = interest payment
P = principal amount
r = interest rate per period
The formula for calculating the principal payment is:
PP = A – I
Where:
PP = principal payment
A = amortization payment
I = interest payment
what is Amortization
Amortization is the process of paying off a debt over time through a series of regular payments. This includes both the principal amount borrowed and the interest charged on that amount. Amortization is typically used for loans like mortgages, car loans, and personal loans, where the borrower repays the loan in installments over a fixed period of time. Each payment made by the borrower goes towards reducing the outstanding balance of the loan, while also paying the interest due on the outstanding balance. The amortization process helps to ensure that the loan is fully paid off by the end of the term, typically over a period of several years.