Overview

Main Menu Name: Amortize

Calculates year-by-year: the remaining principal balance of a mortgage, the annual principal payment, the annual portion of the payment attributable to interest, the total amount of principal paid during the life of the loan, and the total amount of interest paid for the life of the mortgage.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

Mortgage amortization involves the periodic reduction of a mortgage debt over periods of time typically ranging from 10 to 30 years. Interest rates are applied only to the remaining balance on the mortgage debt. Principal and interest are included in monthly payments, which may also include escrowed amounts for real estate taxes, insurance, and other assessment items against the property.

The mechanics of an amortized loan are that the lender calculates the exact amount that must be paid each month (or quarterly, semiannually, etc.) in order to completely amortize (pay off) the principal amount of the loan over the specified time period.

The amortization process continues until the loan is paid off. During this time, the annual interest is first computed on the remaining balance of the mortgage. Then, it is converted to a monthly interest charge by dividing the annual interest by 12 months. This monthly interest is then subtracted from the payment. The balance of the payment remaining is then deducted from the remaining mortgage balance. The result is the new mortgage balance. This is then used to compute the next month's apportionment and charges.

Since the loan balance is larger in the early years, a much larger portion of each payment goes to interest. In later years the greater portion of each payment is credited against principal.

Why should I use this calculator?

• To compute monthly mortgage payments.
• To determine tax implications of interest payments.

Getting Started

Mortgage amortization involves the periodic reduction of a mortgage debt over periods of time typically ranging from 10 to 30 years. Interest rates are applied only to the remaining balance on the mortgage debt. Principal and interest are included in monthly payments, which may also include escrowed amounts for real estate taxes, insurance, and other assessment items against the property.

The mechanics of an amortized loan are that the lender calculates the exact amount that must be paid each month (or quarterly, semiannually, etc.) in order to completely amortize (pay off) the principal amount of the loan over the specified time period.

The amortization process continues until the loan is paid off. During this time, the annual interest is first computed on the remaining balance of the mortgage. Then, it is converted to a monthly interest charge by dividing the annual interest by 12 months. This monthly interest is then subtracted from the payment. The balance of the payment remaining is then deducted from the remaining mortgage balance. The result is the new mortgage balance. This is then used to compute the next month's apportionment and charges.

Since the loan balance is larger in the early years, a much larger portion of each payment goes to interest. In later years the greater portion of each payment is credited against principal.

Entering Data

1. Purchase Price:  Enter the purchase price of the property.
2. Down Payment:  Enter the amount given as a down payment.
3. Annual Interest Rate:  Enter the annual interest rate.
4. First Year:  Enter the first year of the amortization schedule.
5. Term:  Choose whether the term is in months or years, then how long it will take to repay the loan.
6. Months in First Year:  Enter the number of months in the first year of the repayment period.
7. Annual or Monthly Report?:  Select to view an Annual report or Monthly report. The report is viewed by clicking the Schedule tab.
8. Monthly Report for Year:  This entry field only appears when you choose to view a Monthly Report. Enter any year in the repayment period to view the activity for each individual month.

Results

The program calculates the amount financed, the monthly payment amount, and the number of months in the last year of the payment period.

Schedule

The program creates an amortization table or report that can be viewed in years or in months. Both modes calculate the Month-End Principal Balance, the Monthly Principal Paid, the Monthly Interest Paid, the Principal Paid to Date, and the Interest Paid to Date.