1. What is a Fully Amortized Loan?

A fully amortized loan is a type of loan where regular payments (usually monthly) consist of both principal and interest, calculated to pay off the loan completely by the end of the term. Common examples include mortgages and auto loans.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( PMT \) — Monthly payment amount
• \( PV \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the fixed payment amount required to pay off the loan over its term, accounting for both interest and principal repayment with each payment.

3. Importance of Payment Calculation

Details: Accurate payment calculation is crucial for budgeting, loan comparison, and understanding the true cost of borrowing. It helps borrowers assess affordability before committing to a loan.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between amortized and interest-only loans?
A: Amortized loans pay both principal and interest with each payment, while interest-only loans only pay interest during the initial period.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q3: What if I make extra payments?
A: Extra payments reduce principal faster, potentially saving interest and shortening the loan term.

Q4: Are there loans that don't use this formula?
A: Yes, some loans like credit cards or adjustable-rate mortgages may use different calculation methods.

Q5: Does this include taxes and insurance?
A: No, this calculates only principal and interest. Actual mortgage payments often include escrow for taxes and insurance.