Why use the Amortization calculator?
The Amortization calculator can help you to determine the amount of money you will need to pay each month on loan, as well as provide a breakdown of the total cost of the loan over its life. Knowing how much you will need to pay each month can help you plan your budget and make sure you can afford the payments. Additionally, understanding the total cost of the loan can help you to decide if the loan is the right financial choice for you.
What is the function of the amortisation calculator?
An amortisation calculator is a tool used to determine the periodic payment amount due on a loan and how that payment is divided between interest and principal. The formula for calculating the payment amount is:
Payment equals (Interest + Principal) divided by number of payments.
Interest is the loan's interest rate, written as a decimal (e.g., 0.05 for 5%).
The principal is the amount of the loan.
The number of payments is the total number of payments required to pay off the loan.
For example, let's say you have a loan of $100,000 with a 5% interest rate and a 30-year term. Using the formula above, we can calculate the monthly payment as follows:
Payment = $100,000 divided by 0.05) equals $416.67.
In this example, the payment amount is $416.67 per month. Of that amount, $20.83 goes towards interest, and $395.83 goes towards paying down the principal. The amortisation calculator will break down the payment this way for each payment over the life of the loan.
It's important to note that the interest portion of the payment decreases over time while the principal portion increases as the loan balance is paid down. This is known as amortization.
An amortisation calculator can be a useful tool for understanding how much of each payment is going towards interest and how much is going towards paying down the principal. It can also be used to compare different loan options and determine the best one for your needs.
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