How to Use An Amortization Calculator
An amortization calculator is very easy to use and gives you very valuable information, provided you know how to use the calculator properly. It is also important that you know what information the calculator is giving you and why that information is important.
To understand the amortization calculator, it is important to get a little background on how a basic mortgage calculator works. Basically, mortgage calculators are calculators that figure your monthly payment when you know how much money you need to borrow, what the interest rate of the loan is, and how many months it will take you to pay off the loan in full.
Usually, a mortgage calculator is used to calculate the payment of a mortgage for which the term is 30 years. 30 years, of course, is 360 months. So, in a normal mortgage calculator you would input 360 in the box, which asks for the number of payments.
Second, you have to know the interest rate of the mortgage. If you were calculating for a mortgage right now and you had a decent credit rating, probably you would input 6.75% into this box. And finally, you would simply enter the amount of money you need to borrow in the box marked principal. In this example, if you are looking to calculate the payment for a $300,000 mortgage, you would enter $300,000 in the principal box and click the 'click here to calculate" button.
The answer would be $1,945.79. In a very good mortgage calculator, you would probably also be shown the amount of money you would have paid into the mortgage over the full 30 or years. In this example, that would be $700,484.40.
Some mortgage calculators also calculate for the amount of money you could borrow if you knew the interest rate, the term of the mortgage, usually 360 months, and the amount of the monthly payment you could afford to pay. This type of calculation is very important when you know how large a monthly payment you'll be able to make each month. Then by knowing the interest rate, you'll be able to find out how much money you are qualified to borrow.
An amortization calculator calculates for the principal, but it calculates this principal after each monthly payment. In other words, the first month it calculates your monthly payment. After that, knowing your monthly payment, and knowing that one fewer month is left to be paid, and knowing the interest rate, it then calculates the principal. Then, the next month it does the same thing. The only difference is, the next month it calculates for one fewer payment.
So, an amortization calculator is a calculator that calculates for principal but does so after each monthly payment is made. Then, an amortization calculator will subtract the principal you now owe from the principal you owed previous to your last payment. This will show you how much principal you paid in your last monthly payment. Since that payment may have been, as in the example above $1,945.79, and the principal paid, at least the first month, would have been $248.49, this number will be subtracted from the $1,945.79 to show you how much interest you would have paid in that monthly payment. Oh! By the way, this number would be $1,687.50.
Then, the amortization calculator will keep a running total of how much interest you've paid over the course of your loan. The best thing about the calculations the amortization calculator makes is that it does it for you in advance, so you can study a mortgage payment schedule before you agree to take out a particular mortgage.