An amortization calculator helps you understand the repayment schedule of a loan. It breaks down each payment into principal and interest, showing how your loan balance decreases over time. This is crucial for understanding the true cost of borrowing and planning your finances effectively.
When you take out a loan (like a mortgage, auto loan, or personal loan), you agree to pay back the borrowed amount (the principal) plus interest over a set period (the loan term). Each month, you make a payment that covers both the interest accrued since the last payment and a portion of the principal.
How the Amortization Calculation Works
The core of the amortization calculation is determining the fixed monthly payment. The formula used is derived from the standard annuity formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]</code
Where:
M = Your total monthly mortgage payment
P = The principal loan amount (the amount you borrowed)
i = Your monthly interest rate (annual rate divided by 12)
n = The total number of payments over the loan's lifetime (loan term in years multiplied by 12)
This formula ensures that by the end of the loan term, the entire principal is paid off, along with all the accrued interest.
Key Components Explained:
Loan Principal (P): This is the initial amount of money borrowed.
Annual Interest Rate: The yearly percentage charged by the lender. For the calculation, this needs to be converted to a monthly rate by dividing by 12.
Loan Term (Years): The duration over which the loan is to be repaid. This is converted into the total number of monthly payments.
Total Number of Payments (n): Calculated as Loan Term (Years) * 12.
Why Use an Amortization Calculator?
This calculator is a valuable tool for:
Budgeting: Knowing your fixed monthly payment helps you budget accurately.
Comparison: Compare loan offers from different lenders by inputting their terms to see which offers a better monthly payment and overall cost.
Understanding Loan Costs: See how changing the interest rate or loan term significantly impacts your monthly payment and the total interest paid over the life of the loan.
Financial Planning: Plan for extra payments or understand the impact of making larger down payments.
By using this amortization calculator, you gain clarity and control over your borrowing decisions, leading to more informed financial choices.
function calculateAmortization() {
var principal = parseFloat(document.getElementById("loanAmount").value);
var annualRate = parseFloat(document.getElementById("annualInterestRate").value);
var termYears = parseFloat(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
var monthlyPaymentSpan = document.getElementById("monthlyPayment");
// Validate inputs
if (isNaN(principal) || principal <= 0 ||
isNaN(annualRate) || annualRate < 0 ||
isNaN(termYears) || termYears <= 0) {
alert("Please enter valid positive numbers for all fields.");
resultDiv.style.display = 'none';
return;
}
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = termYears * 12;
var monthlyPayment = 0;
// Handle the case where the interest rate is 0%
if (monthlyRate === 0) {
monthlyPayment = principal / numberOfPayments;
} else {
// Standard Amortization Formula
monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) - 1);
}
// Format the output to two decimal places for currency
var formattedMonthlyPayment = monthlyPayment.toFixed(2);
monthlyPaymentSpan.textContent = "$" + formattedMonthlyPayment;
resultDiv.style.display = 'block';
}