Amortization is the process of paying off a mortgage (or any type of debt) over a period of time with equal payments. Each periodic payment consists of two portions, the amount which goes towards paying off the principal, and the other goes towards paying the interest on the loan. Since with each payment the amount of the loan principal becomes smaller, the amount of interest to be paid on the loan also decreases.
Over time, the portion of the payment going towards the principal grows, while the interest payment declines. An amortization schedule shows the breakdown of principal and interest payment for each payment period over the entire life of the loan.
Estimated Payoff Date
The formula to calculate mortgage payments requires the following information:
Once you have these numbers, use the following formula to calculate your monthly loan payment:M (your monthly payment) = P[r(1+r)^n/((1+r)^n)-1)]