Mortgage Amortization Calculator

What is a Mortgage Amortization Calculator?

A Mortgage Amortization Calculator is a financial tool that helps borrowers understand how their mortgage payments are applied to the principal and interest over time. It provides a detailed schedule of payments, showing how the loan balance decreases with each payment until it's fully paid off.

Formula for Mortgage Amortization Calculation

The formula for calculating the monthly payment on a mortgage is:

\[M = P \times \frac{r(1+r)^n}{(1+r)^n - 1}\]

Where:

• M = Monthly Payment
• P = Principal Loan Amount
• r = Monthly Interest Rate (Annual Rate / 12)
• n = Total Number of Monthly Payments (Loan Term in Years × 12)

Calculation Steps

1. Calculate the monthly interest rate by dividing the annual rate by 12.
2. Determine the total number of monthly payments by multiplying the loan term in years by 12.
3. Apply the formula to calculate the monthly payment.
4. For each payment, calculate the interest portion (current balance × monthly rate) and the principal portion (payment amount - interest portion).
5. Subtract the principal portion from the current balance to get the new balance.
6. Repeat steps 4-5 for each payment until the loan is fully amortized.

Example

Let's consider a mortgage with the following details:

• Loan Amount: $200,000
• Interest Rate: 4% per year
• Loan Term: 30 years

Calculation:

1. Monthly interest rate: 4% / 12 = 0.3333%
2. Number of monthly payments: 30 × 12 = 360
3. Monthly payment: $954.83
4. Total interest paid: $143,739.01

In this example, the borrower would pay $954.83 monthly. Over the 30-year term, they would pay a total of $343,739.01, of which $143,739.01 is interest. The amortization schedule would show how each payment is split between principal and interest, and how the loan balance decreases over time.