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An amortization schedule breaks down every loan payment into its principal and interest components over the full loan term. It shows exactly how much of each payment reduces the balance versus paying interest.
Formula
Payment = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Guida passo passo
- 1Calculate fixed monthly payment using the annuity formula
- 2Month 1 interest = balance × monthly rate; principal = payment − interest
- 3New balance = previous balance − principal; repeat until balance = 0
Esempi risolti
Ingresso
$250,000 loan · 6% annual rate · 30 years
Risultato
Monthly payment = $1,498.88 · Total interest paid = $289,595
In month 1 only $248.88 of $1,498.88 reduces the principal balance
Errori comuni da evitare
- ✕Comparing APR vs note rate when calculating payments
- ✕Forgetting taxes and insurance in total housing cost
- ✕Ignoring prepayment penalties when planning extra payments
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