1. What is Amortization?

Amortization refers to the process of paying off a debt over time through regular payments. For mortgages, each payment is divided between interest charges and paying down the principal balance.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( Payment \) — Total monthly payment amount
• \( Interest \) — Interest portion of the payment

Explanation: The difference between your total payment and the interest portion goes toward paying down your principal balance.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers see how much of each payment reduces their principal versus paying interest, which is crucial for financial planning and loan comparisons.

4. Using the Calculator

Tips: Enter your total payment amount and the interest portion (both in USD). The calculator will show how much goes toward your principal balance.

5. Frequently Asked Questions (FAQ)

Q1: Why does early amortization seem slow?
A: In early loan periods, most of your payment goes toward interest due to the higher outstanding balance.

Q2: How can I pay less interest overall?
A: Making extra principal payments reduces your loan balance faster, decreasing total interest paid.

Q3: Does amortization change over time?
A: Yes, as your principal decreases, the interest portion of each payment decreases, allowing more to go toward principal.

Q4: Are all mortgage payments amortized?
A: Most fixed-rate mortgages use amortization, but some loans (like interest-only) have different payment structures.

Q5: How does refinancing affect amortization?
A: Refinancing typically resets the amortization schedule, often extending the loan term unless you refinance to a shorter term.