Amortization is the reduction over a period of time of a particular
liability such as a mortgage. This normally involves payments which
are part repayment of the initial loan and part payment for the
interest due each month on the remaining loan balance. Since the
amount the loan is reduced each month by the portion of the payment
which is allocated to the principal is different each month, the
allocation of each payment changes. There are various programs online
which will calculate this for you. You can also use a spreadsheet or
proprietary real estate calculation package to perform the
calculations. If you are a mortgage holder, that is, have made a loan,
perhaps on a house you have sold (owner financing), then you need to
perform this calculation each year in order to know which portion of
payments should be allocated to interest and which to the principal
both for your taxes and for possible tax deductions for the buyer. Of
course this will vary from country to country. In many instances where
a real property loan is involved, that is, one involving land and
buildings, there is also an escrow payment made each month. This will
not be shown by any amortization calculator and will change
periodically because it is used to pay both insurance and taxes on the
property.
An amortization schedule applies to any loan large enough to require
monthly payments, not just home loans. In the case of a car loan, the
current economic situation in the U.S. means that it may be possible
to get a zero percent loan, meaning that no interest is being charged
and therefore each payment is applied directly to the current loan
balance. The same calculators will normally work by simply entering
0.0 as the interest rate.
To use any other amortization software you need to know all but one of
the following: the original loan amount, the interest rate, the length
of the loan, and the periodic payment. Most calculators are intended
to calculate the monthly payment but some will calculate any missing
term when you supply the others.
Several versions of Microsoft Excel contain loan amortization
templates complete with instructions on how to use them.
You can download a free Canadian calculator program or more generic
calculators for Windows platforms from:
http://www.wheatworks.com/
The Home Buyer’s Calculator, one of the free downloads available from
Wheatworks, will also handle such sophisticated problems such as how
much you can save by making individual or periodic extra payments
which are applied only on the principal.
Of course any lender will provide you with a schedule of payments for
your loan, but with any financial transaction large enough to require
amortization calculations it’s certainly a good idea to double check
their numbers.
When using an amortization calculator you can vary the payment length,
interest, original loan amount, or payment to see how any change would
alter your financial position. You can also use a calculator to show
how much of the original loan has been paid off and thus what
percentage of the property you own at any particular time. This is NOT
the same thing as the payoff amount, or what you would be charged to
simply pay off the loan entirely at any given time. Even when the
terms of a loan don’t call for any pre-payment penalty, there are
various fees involved in paying off a major loan so the payoff amount
will be somewhat larger than the amount you would calculate simply
using an amortization calculator.
If you are using a calculator to determine if you should refinance a
loan because of lower interest rates, then you need to factor in other
information such as the cost of getting the new loan and how long you
intend to keep paying off the loan. The best way to do this is to use
a calculator specifically for this purpose.
For further information, the best site I was able to locate for
various online loan calculation programs is at:
http://www.hsh.com/calculators.html
For a very quick check on the accuracy of your software or any formula
you create on your own, try:
http://www.hsh.com/mopaytable-print.html
this page has a table of payments pre-calculated for various
percentage rates and both 15- and 30-year terms, based on a $1,000
unit loan. Simply multiply the appropriate payment amount by the
actual amount of your loan in $thousands.
There is a good refinance calculator at:
http://www.hsh.com/usnrcalc.html
This will calculate the terms of both the existing and proposed loan
and show how long it will take to break even on the new loan, thus how
quickly the new loan will begin saving you money.
Keywords Used:
amortization formula
://www.google.com/search?sourceid=navclient&q=amortization+formula
freeware amortization rate calculator
://www.google.com/search?sourceid=navclient&q=freeware+amortization+rate+calculator
And
refinance calculator
://www.google.com/search?sourceid=navclient&q=refinance+calculator
Since you didn’t specify any particular program I believe this should
answer your general question on how to use amortization calculator
software.
Regards,
Siliconsamurai |
