A loan amortization calculator is a crucial tool for anyone taking out a loan, whether it's a mortgage, auto loan, or personal loan. It helps you understand how your regular payments are applied to both the principal amount borrowed and the interest charged by the lender over the life of the loan.
How It Works: The Amortization Formula
The core of the amortization calculation is determining the fixed monthly payment. This payment covers both the principal and the interest, and it remains constant throughout the loan term. The formula used is derived from the standard annuity payment 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)
Breaking Down Your Monthly Payment
Each monthly payment is split into two parts:
Interest Portion: This is the cost of borrowing money. In the early stages of a loan, a larger portion of your payment goes towards interest.
Principal Portion: This is the amount that reduces your outstanding loan balance. As you progress through the loan term, more of your payment is allocated to the principal.
Over time, your loan balance decreases, and the interest portion of your payment shrinks, while the principal portion grows. This gradual repayment process is called amortization.
Why Use an Amortization Calculator?
Budgeting: Accurately estimate your monthly expenses for loan repayment.
Comparison: Compare different loan offers by seeing the monthly payment implications of various interest rates and terms.
Financial Planning: Understand the total cost of borrowing over the loan's life.
Extra Payments: See how making extra payments can significantly reduce the loan term and total interest paid.
By using this calculator, you gain clarity and control over your financial commitments, enabling smarter borrowing decisions.
function calculateAmortization() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var monthlyPaymentDisplay = document.getElementById("monthlyPaymentDisplay");
// Clear previous results
monthlyPaymentDisplay.textContent = "$0.00";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid loan amount greater than zero.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid loan term in years greater than zero.");
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
var monthlyPayment;
if (monthlyInterestRate === 0) {
// Handle zero interest rate case
monthlyPayment = loanAmount / numberOfPayments;
} else {
// Standard amortization formula
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfPayments) - 1;
monthlyPayment = loanAmount * (numerator / denominator);
}
// Format and display the result
monthlyPaymentDisplay.textContent = "$" + monthlyPayment.toFixed(2);
}