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An amortization schedule is a table detailing each periodic payment on an amortizing loan (typically a mortgage), as generated by an amortization calculator. [1] Amortization refers to the process of paying off a debt (often from a loan or mortgage) over time through regular payments. [2] A portion of each payment is for interest while the ...
An amortization calculator is used to determine the periodic payment amount due on a loan (typically a mortgage), based on the amortization process. [ 1 ] The amortization repayment model factors varying amounts of both interest and principal into every installment, though the total amount of each payment is the same.
The calculations for an amortizing loan are those of an annuity using the time value of money formulas and can be done using an amortization calculator. An amortizing loan should be contrasted with a bullet loan, where a large portion of the loan will be paid at the final maturity date instead of being paid down gradually over the loan's life.
The following derivation of this formula illustrates how fixed-rate mortgage loans work. The amount owed on the loan at the end of every month equals the amount owed from the previous month, plus the interest on this amount, minus the fixed amount paid every month. This fact results in the debt schedule:
On a 30-year amortizing loan, paying equal amounts monthly, one has the following WALs, for the given annual interest rates (and corresponding monthly payments per $100,000 principal balance, calculated via an amortization calculator and the formulas below relating amortized payments, total interest, and WAL):
Amortization is the acquisition cost minus the residual value of an asset, calculated in a systematic manner over an asset's useful economic life. Depreciation is a corresponding concept for tangible assets. Methodologies for allocating amortization to each accounting period are generally the same as those for depreciation.
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