Use this comprehensive mortgage calculator to estimate your monthly payment and generate a detailed amortization schedule, showing how your principal and interest change over the life of the loan.
Mortgage Amortization Calculator
Estimated Monthly Payment ($M$):
$0.00Total Interest Paid: $0.00
Total Loan Cost: $0.00
Mortgage Amortization Formula
The standard formula used to calculate the fixed monthly payment ($M$) required to fully amortize a loan is:
Where $P$ is the Principal Loan Amount, $i$ is the monthly interest rate ($R/12/100$), and $n$ is the total number of payments (Term in Years $\times 12$).
Formula Sources: Source 1, Source 2
Variables Used in the Calculation
- Loan Amount ($P$): The total initial amount of money borrowed (the principal).
- Annual Interest Rate ($R$): The yearly interest rate expressed as a percentage. This is converted to the monthly rate ($i$) for the formula.
- Loan Term in Years ($N$): The length of time over which the loan is to be repaid, typically 15 or 30 years. This is converted to total monthly payments ($n$).
What is Mortgage Amortization?
Mortgage amortization is the process of paying off a debt over time in regular installments. For a standard fixed-rate mortgage, each monthly payment covers both a portion of the interest accrued since the last payment and a portion of the loan’s principal balance.
In the early years of the loan, the majority of your monthly payment is dedicated to interest because the principal balance is high. As the loan matures, a decreasing amount goes towards interest, and an increasing amount goes towards reducing the principal. This systematic breakdown ensures that the loan is paid off exactly by the end of the term.
How to Calculate Amortization (Example)
- Determine Loan Variables: Assume a loan of $200,000, an annual rate of 6%, and a 30-year term.
- Calculate Monthly Rate ($i$): Divide the annual rate by 12 and 100: $i = 0.06 / 12 = 0.005$.
- Calculate Total Payments ($n$): Multiply the term by 12: $n = 30 \times 12 = 360$.
- Find Monthly Payment ($M$): Plug the values into the formula to find $M \approx \$1,199.10$.
- Generate Schedule: For the first month, calculate interest: Principal $\times i = \$200,000 \times 0.005 = \$1,000$.
- Determine Principal Paid: Subtract interest from the payment: $\$1,199.10 – \$1,000.00 = \$199.10$.
- New Balance: Subtract principal paid from the old balance: $\$200,000 – \$199.10 = \$199,800.90$.
- Repeat: Repeat this process for all 360 payments to build the full amortization schedule.
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Frequently Asked Questions (FAQ)
How does amortization affect my monthly payment?
Amortization refers to the balance reduction process. For a fixed-rate loan, it does not change the monthly payment amount ($P\&I$). It only changes the *allocation* of that payment between principal and interest over time.
What is the difference between principal and interest?
Principal is the amount you borrowed and must repay. Interest is the cost charged by the lender for borrowing that money. Both are included in your monthly payment.
Can I pay off my mortgage faster?
Yes. By making extra payments designated toward the principal, you reduce the balance faster, which in turn reduces the interest calculated on that balance, effectively shortening the loan term and saving you significant money.
Why is my payment mostly interest at the beginning of the loan?
Interest is calculated based on the outstanding principal balance. Since the balance is highest at the start of the loan, the accrued interest is also at its maximum, consuming most of the fixed monthly payment.