1. What is Amortization in a Promissory Note?

Amortization in a promissory note refers to the process of gradually paying off the principal amount of the loan through regular payments. Each payment consists of both interest and principal portions, with the principal portion increasing over time as the interest portion decreases.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( \text{PMT} \) — Total payment amount (USD)
• \( \text{Interest Portion} \) — Interest portion of the payment (USD)

Explanation: The formula calculates how much of your payment goes toward reducing the principal balance after accounting for the interest due.

3. Importance of Amortization Calculation

Details: Understanding amortization helps borrowers track how much principal they're paying down with each payment, plan for loan payoff, and understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the total payment amount and the interest portion (both in USD). The calculator will show how much is being applied to the principal balance.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between PMT and amortization?
A: PMT is the total payment (principal + interest), while amortization is just the principal portion of that payment.

Q2: How does amortization change over time?
A: In a standard amortizing loan, the interest portion decreases with each payment while the principal portion increases.

Q3: What's an amortization schedule?
A: A table showing the breakdown of each payment into principal and interest components over the life of the loan.

Q4: Why is my principal payment so small at first?
A: Early in the loan term, most of your payment goes toward interest because the outstanding balance is at its highest.

Q5: How can I pay off my loan faster?
A: Making additional principal payments reduces the total interest paid and shortens the loan term.