What is Amortization Calculator?
An amortization calculator creates a complete table detailing each payment period, illustrating how early payments consist primarily of interest while later payments accelerate principal reduction.
How to Use This Calculator
- Enter initial loan balance.
- Choose repayment term in years.
- Set annual interest rate.
- Inspect the dynamic periodic amortization table showing balance trajectory.
The Mathematical Formula & Variables
Interest = Previous_Balance * r; Principal = Payment - Interest
Variables Definition
| Symbol / Variable | Name | Description |
|---|---|---|
Interest_k |
Period Interest | Interest accrued on remaining balance during month k. |
Principal_k |
Principal Reduction | Portion of payment that reduces outstanding balance. |
Step-by-Step Worked Example
Scenario: $200,000 loan for 30 years at 6.0% interest.
- Monthly payment PMT = $1,199.10.
- Month 1 Interest: $200,000 * (0.06 / 12) = $1,000.00.
- Month 1 Principal: $1,199.10 - $1,000.00 = $199.10.
- Remaining Balance: $200,000 - $199.10 = $199,800.90.
- Month 2 Interest: $199,800.90 * 0.005 = $999.00. Principal = $200.10.
Result: Over 30 years, total interest paid equals $231,676.
Frequently Asked Questions
Why is most of my early mortgage payment interest?
Because interest is calculated as a percentage of the remaining principal balance, which is at its highest point in early loan years.
What is negative amortization?
Negative amortization happens when payments are insufficient to cover accrued interest, causing unpaid interest to be added to the principal balance, increasing total debt.