This calculation includes principal and interest only. Taxes, insurance, and fees are not included.
Understanding Loan Amortization
Loan amortization is the process of paying off a debt over time through a series of regular payments. Each payment is applied to both the principal amount of the loan and the interest accrued. Over the life of the loan, the portion of your payment that goes towards interest gradually decreases, while the portion that goes towards the principal increases.
How Loan Amortization Works
The core of amortization lies in calculating a fixed periodic payment that will fully repay the loan by its maturity date. This payment is determined by the loan amount, the interest rate, and the loan term. The formula used to calculate the monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount
i = Monthly interest rate (Annual rate / 12)
n = Total number of payments (Loan term in years * 12)
Key Components Explained
Principal: The original amount of money borrowed.
Interest Rate: The cost of borrowing money, usually expressed as an annual percentage. For calculations, this needs to be converted to a monthly rate.
Loan Term: The duration over which the loan will be repaid, typically in years. This is converted into the total number of monthly payments.
Monthly Payment: The fixed amount paid each month, covering both principal and interest.
Use Cases for Amortization Calculators
Amortization calculators are invaluable tools for:
Homebuyers: To estimate monthly mortgage payments, understand how interest rates affect affordability, and compare different loan terms.
Car Buyers: To determine the monthly cost of a vehicle loan.
Personal Loans: To plan for repaying personal debts or loans.
Financial Planning: To budget effectively and understand the total cost of borrowing over time.
By using this calculator, you can get a clear estimate of your monthly loan payment. Remember that this calculation typically only includes principal and interest. Additional costs such as property taxes, homeowner's insurance (for mortgages), private mortgage insurance (PMI), or loan origination fees are not factored in and will increase your total monthly housing expense.
function calculateAmortization() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("interestRate").value);
var loanTerm = parseFloat(document.getElementById("loanTerm").value);
var monthlyPaymentElement = document.getElementById("monthlyPayment");
// Clear previous results
monthlyPaymentElement.innerHTML = "$0.00";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid loan amount.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate.");
return;
}
if (isNaN(loanTerm) || loanTerm <= 0) {
alert("Please enter a valid loan term in years.");
return;
}
// Calculations
var monthlyInterestRate = (annualInterestRate / 100) / 12;
var numberOfPayments = loanTerm * 12;
var monthlyPayment = 0;
// Handle cases where interest rate is 0
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPayments;
} else {
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
}
// Display the result
if (isFinite(monthlyPayment)) {
monthlyPaymentElement.innerHTML = "$" + monthlyPayment.toFixed(2);
} else {
monthlyPaymentElement.innerHTML = "Error";
alert("Could not calculate the monthly payment. Please check your inputs.");
}
}