1. What is the Amortization Calculation?

The amortization calculation determines how much of each payment goes toward the principal balance versus interest in a real estate promissory note. This helps track loan payoff progress and interest expense.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( Payment \) — Regular payment amount (USD)
• \( Balance \) — Current loan balance (USD)
• \( r \) — Periodic interest rate (decimal)

Explanation: The formula separates each payment into interest (Balance × rate) and principal reduction (Payment - Interest).

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers see how much equity they're building, plan for tax deductions, and evaluate refinancing options.

4. Using the Calculator

Tips: Enter payment amount in USD, current balance in USD, and interest rate as a decimal (e.g., 0.05 for 5%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between amortization and simple interest?
A: Amortization accounts for changing principal balance over time, while simple interest calculations assume a constant principal.

Q2: How often should I calculate amortization?
A: For most loans, reviewing amortization annually helps track progress, but monthly review is better for short-term notes.

Q3: Why does my amortization amount change over time?
A: As principal balance decreases, less of each payment goes toward interest and more toward principal.

Q4: How does extra payment affect amortization?
A: Extra payments directly reduce principal, accelerating amortization and reducing total interest paid.

Q5: Is this calculation the same for all loan types?
A: This works for standard amortizing loans. Interest-only, balloon, or adjustable-rate loans require different calculations.