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You Can Make A Loan Amortization Calculator Work For You

If you are in the process of buying a house, seeking a personal loan, or wondering if a home equity loan is right for you, then it is imperative that you figure out what your costs will be before closing on your loan. Closing costs, miscellaneous fees, and monthly payments could push the price of your loan beyond your ability to successfully pay it back or, at the very least, make it difficult for you to make payments. Sure, you could rely on a loan officer to run the numbers for you, but why do that? Use a loan amortization calculator to determine what your monthly loan payments will be.

For years, banks have been using amortization schedules to determine what your monthly payments will be on loans. These detailed schedules reveal several things about a loan including:

  • Your monthly interest payment
  • Your monthly principle payment
  • Cumulative interest
  • Cumulative principle
  • Principle balance

In addition, you will see the amount that was financed, the annual interest rate, the total number of payments due, and your monthly payment. This last category, your monthly payment, will determine just how much you will pay back each month on the loan.

So, just how does a lender determine what your monthly payment will be? That's easy! There are several factors that will be calculated including:

Amount loaned - this is the amount of money you plan on financing for your purchase. Typically it is whatever monies were not used for closing costs, the down payment, etc.

Annual percentage rate - all loans determine an annual percentage rate, including variable mortgage loans. Yes, your rate will fluctuate later on but for at least a certain period of time the rate will be fixed. It is this fixed rate that determines your monthly payment.

Number of monthly [or regular] payments - a 30 year loan means that there will be 360 payments over the course of the loan provided 12 payments are made each year.

Now, to determine your monthly payment you need to enter in the amount to be borrowed or loaned to you, the annual percentage rate of the loan, and the number of monthly payments. For example, $200,000 borrowed for 30 years at an annual percentage rate of 6.25% would mean that your monthly payments would be $1231.43. Can you afford this amount? Well, only you can determine that. A loan amortization calculator has done part of the work for you so divide that amount into your monthly income to determine if you can swing a loan today.