1. What is a Fully Amortizing Payment?

A fully amortizing payment is a periodic loan payment where each payment pays both principal and interest, with the loan balance reaching zero at the end of the term. This is the standard payment structure for most mortgages and installment loans.

2. How Does the Calculator Work?

The calculator uses the amortizing payment formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (loan term in months)

Explanation: The formula accounts for the time value of money, calculating equal payments that will pay off the loan exactly by the end of the term.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers see how much of each payment goes toward principal vs. interest, plan for refinancing, and compare loan options.

4. Using the Calculator

Tips: Enter principal in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12 (months) and by 100 (to convert from percentage to decimal).

Q2: What's the difference between amortizing and interest-only loans?
A: Amortizing loans pay down principal each month, while interest-only loans require payments that cover just the interest for a period.

Q3: How does extra principal payment affect amortization?
A: Extra principal payments reduce total interest paid and can shorten the loan term significantly.

Q4: What's an amortization schedule?
A: A table showing each payment's allocation to principal and interest, and the remaining balance after each payment.

Q5: Are all mortgage payments fully amortizing?
A: Most are, but some loans (like ARMs or balloon mortgages) may have periods of interest-only payments or a final balloon payment.