Our free Amortization Calculator app is now available to download in the Google Play marketplace.
What is an amortization calculator?
An amortization calculator determines payment information for any type of loan although it is most commonly used for mortgages. It requires a starting amount (principal), an annual interest rate and a length in years or months (term). Based on that information it calculates the monthly payment that is required to pay off the loan in the term length. In most cases, it is assumed the interest rate is fixed and does not change over the course of the loan. It is also assumed that there is only one payment per month.
How is the monthly payment determined?
Calculating the monthly payment amount requires a complex formula because it has to account for interest. Each month the amount of interest that is owed changes as the remaining balance of the loan decreases. Taking this into consideration, the formula generates the exact amount that needs to be paid each month to account for interest and be able to pay off the loan in the term length. Don’t worry about the specifics of this formula as is it is much too complex to calculate yourself!
What is an amortization schedule?
Most amortization calculators will also give you the option to generate an amortization schedule. Think of an amortization schedule like a detailed payment plan for your loan. It lists each payment and breakdowns how much of that payment is interest and how much goes toward the principal. It will also track the remaining principal and how much total interest you’ll end up paying. Be aware that amortization schedules are somewhat simplified as they don’t account for taxes, fees, extra payments, refinancing or changes in the interest rate. Additionally, rounding needs to be done to display payment amounts so that can be lead to results that appear slightly different but are still accurate.