Frequently Asked Questions & Formulas
How is mortgage monthly payment calculated?
Mortgage payments are calculated using the standard amortization formula: M = P [ r(1 + r)^n ] / [ (1 + r)^n - 1 ], where P is principal, r is the monthly interest rate, and n is the total number of monthly payments.
What is loan amortization?
Loan amortization is the process of spreading out a loan into equal periodic payments over time. In early years, a larger percentage of your payment goes toward interest, while in later years, more goes toward paying down the principal balance.
How does an extra payment affect a mortgage?
Making one extra monthly payment per year directly reduces the loan principal, which drastically lowers the total compounding interest and can shave 5 to 8 years off a 30-year mortgage.
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