Amortization refers to the changes in the important equilibrium of a loan - such as a mortgage loan - over time. Each month, a fixed payment is made. A quantum of that payment goes toward paying interest on the loan to the lender. The rest goes toward the loan principal, or number still owed on the loan if it were to be paid off today.
Over time, as the important gets paid down, a greater quantum of the fixed monthly payment number goes toward paying down the loan's principal. Therefore, the loan gets paid down faster as time goes by.
Calculate Mortgage Interest
If you are seeing for an amortization calculator for a mortgage loan, you may want to learn the method for amortization. That way, you can set up your own calculator in a spreadsheet schedule such as Excel.
The following are two formulas for mortgage loan amortization. The first method tells you how to frame out your monthly payment based upon certain assumptions about the loan. The second method helps you to certainly build an amortization table - month by month - for the life of the loan. This is useful if you want to frame out how much important you will owe at any time in the hereafter while the life of the loan.
The method to Calculate Your Monthly Mortgage Payment
Note: the formulas below assume that you have a accepted loan whereby interest is compounded monthly.
Let us start by defining some variables for use in the formula:
P = principal, the number owed on the loan
I = the every year interest rate (expressed as a number from 1 to 100)
L = loan term, in years
J = monthly interest number in decimal form = I / (12 x 100)
N = loan term, in months = L x 12
M = monthly payment
Here is the formula:
M = P * ( J / (1 - (1 + J) ^ -N))
Note that ^ means "to the power of":
To solve, just result these steps:
1. Calculate 1 + J, then take the result to the power of -N (minus N).
2. Subtract the result from 1.
3. Take the inverse of this result (1 / X).
4. Now, multiply the result by J, then by P.
The method to Calculate the Amortization Table
And now, here is the method to create your own amortization table. Again, let's start by defining the variables:
P = principal, the number owed on the loan
J = monthly interest number in decimal form = I / (12 x 100)
M = monthly payment
H = your current monthly interest = P x J
C = the number of important you pay for the given month = M- H
Q = new important equilibrium (after current payment) of your loan
Now, to calculate the amortization table month by month, you will need to result these steps:
1. Calculate H, which is P x J. This is your current monthly interest.
2. Calculate C, which is M - H. This is the number of important you pay down for the given month.
3. Calculate Q, which is P - C. This is the new equilibrium of your loan.
4. Now, set P = Q and repeat steps 1 to 3 for the following month. Repeat for each month of the loan.
Knowing how to calculate your own monthly payment and amortization schedule is a distinguished way to not only understand the process better, but also to allow you to set this up in your own spreadsheet program.
Need an Amortization Calculator? A Loan and Mortgage Amortization formula Will Do the Trick Calculate Mortgage Interest
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