Understanding Amortization and Your Monthly Payment
An amortization payment calculator helps you determine the fixed monthly payment required to repay a loan over a set period.
This payment covers both the principal amount borrowed and the interest charged by the lender.
The process of paying off a loan gradually over time is known as amortization.
How the Amortization Payment is Calculated
The calculation uses a standard formula for an annuity. The formula for the monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment
P = The principal loan amount (the amount you borrowed)
i = Your calculated monthly interest rate. This is your annual interest rate divided by 12.
n = The total number of payments over the loan's lifetime. This is your loan term in years multiplied by 12.
Example Calculation
Let's say you're looking to finance a home with the following details:
Loan Amount (P): $200,000
Annual Interest Rate: 5%
Loan Term: 30 years
First, we need to convert the annual interest rate to a monthly interest rate and the loan term into months:
So, the estimated monthly payment for this loan would be approximately $1,073.64. This calculator performs these calculations automatically.
Why Use an Amortization Calculator?
This calculator is invaluable for:
Budgeting: Understand the ongoing cost of a loan to ensure it fits your financial plan.
Loan Comparison: See how different interest rates or loan terms affect your monthly payments, helping you choose the most favorable option.
Financial Planning: Visualize your long-term debt obligations.
Homebuyers: Estimate mortgage payments and understand affordability.
Remember that this calculator provides an estimate for principal and interest only. Actual loan payments may also include escrow for property taxes and homeowners insurance, as well as private mortgage insurance (PMI) if applicable.
function calculateAmortizationPayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var monthlyPaymentElement = document.getElementById("monthlyPayment");
// Clear previous results and error messages
monthlyPaymentElement.textContent = "$0.00";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid Loan Amount.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid Annual Interest Rate (cannot be negative).");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid Loan Term in Years.");
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
var monthlyPayment = 0;
if (monthlyInterestRate === 0) {
// Handle case of 0% interest
monthlyPayment = loanAmount / numberOfPayments;
} else {
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
monthlyPayment = loanAmount * (numerator / denominator);
}
// Format the monthly payment to two decimal places
monthlyPaymentElement.textContent = "$" + monthlyPayment.toFixed(2);
}