Amortization Schedule Calculator
Calculation
Monthly Payment (M) = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where: P = Principal Loan Amount, i = Monthly Interest Rate, n = Number of Payments
Understanding Amortization Schedules
An amortization schedule is a table detailing each periodic payment on an amortizing loan (typically a mortgage or car loan), as generated by an amortization calculator. Amortization refers to the process of paying off a debt over time through regular installments. Each payment covers both interest accrued and a portion of the principal balance. The schedule shows the specific amounts allocated to principal and interest with each payment, along with the remaining loan balance after the payment is made.
The mathematical principles behind amortization have been used for centuries in lending. The standard calculation ensures that the fixed periodic payment is sufficient to cover accruing interest and gradually reduce the principal, ultimately bringing the loan balance to zero at the end of the term. Early in the loan, a larger portion of the payment goes towards interest, while later payments increasingly pay down the principal.
Amortization schedules are crucial tools for borrowers to understand the true cost of a loan and how their payments are structured. They clearly illustrate how much interest is paid over the loan's lifetime and how equity is built (in the case of mortgages). Lenders use these schedules for accounting and tracking loan repayment. This calculator provides a detailed breakdown, helping users visualize their payment plan and total interest costs.