What is the equation for amortization? 

Context: I'm using excel to figure out whether refinancing our home is
a good idea for us right now. I need a mathematical equation that I
can use to calculate principal and interest and total payments for x
number of months.

Thanks

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Request for Question Clarification by livioflores-ga on 13 Jul 2004 09:16 PDT

Hi!!

What are the known data that you have? I mean do you know the rate or
know only the number of payments and the amount of money of each one,
or may be you know also the amount of loan.
Any additional info that you can post here will help us to give you a
better answer.

Regards.
livioflores-ga

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Clarification of Question by bcollins-ga on 13 Jul 2004 09:50 PDT

Our current loan is from 2 lenders for 2 different amounts at 2
different interest rates (mortgage assistance program to help with
down payment).

Our new loan would consolidate the 2 loans above. We would know the
total loan as well as the rate and duration.

We are not sure how long we want to stay where we are and if it is
worth it to refinance. So I'm setting up excel to help calculate what
our monthly payments will add up over a period of 3 to 5 years and how
much equity we would then have in the house--both for the old loan
arrangement and the new loan arrangement.

Does this help?

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Clarification of Question by bcollins-ga on 14 Jul 2004 12:32 PDT

Does anyone know how I mark this question as answered?

hi... I have a basic equasion for calculating the proportion of
interest to principal. I work at a mortgage co. and this is what we
use.
 You could use this from payment 1, and down the line; it will require
a bit of math, but it does work. This is better for fixed rate loans.
If you have an ARM, it will be a little bit more work, depending on
how often your rate changes.

**Calculating Interest for a Payment**

Principal Balance x Interest Rate 
__________________________________   = interest due
                  12

Then you take:

Total payment - interest due = amount applied to principal

Enter your interest rate in column b1
Enter your number of years of loan in b2
Enter your loan amount in b3
In b4, enter the following formula pmt(b1/100,b2*12,b3)
b4 should then give you the monthly payment

You can always get every other figure using this. For example to get the total 
amount you pay after all the monthly payments

in b5, enter the formula multiply(b4*b2*12)

Thank you. I think this is just what I was looking for. I found
another explanation on a math site:
http://mathforum.org/library/drmath/view/54613.html. When I plug these
into excel, both of these formulas yield the same series of numbers.
Though I must say that your explanation is more simple and
straightforward.

Thank you for your assistance!

I see, comments are appended to the entire question and not to
individual answeres.

The answer from asweetangel99-ga was the most helpful and more
directly what I was looking for; a mathematical expression that I
could manipulate myself.


I'd also like to thank nandyala-ga for your response. I hadn't
realized excel had that function. The description you provided
required some tweaking, and it didn't help me separate monthly
payments into interest and principal. But I may use it for other
things in the future and will remember to look up special functions in
excel first.

Overall, I'd say using Google answers was a good experience. I can see
that in the future I need to be much more specific about context and
exactly what I need. I'm not use to describing things to folks who
have no idea of my context--my fault really.

I got what I needed. Thanks to all

Bcollins,

If you've received the information you needed from the Comments
section, you may want to cancel your question (click the grey button
that says "CANCEL QUESTION").

The commenters who helped you are not Google Answers Researchers, and
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pinkfreud, Google Answers Researcher

That's cool that we can answer each other's questions for free.
However, since I opened the questioned I think I'll leave it opened to
see what kind of answer a researcher gives me. I don't think it would
be fair to open it and then cancel it. Maybe a researcher has
something interesting to add or some caveat that I've been unaware of.
I'll leave it open for another week and see what comes up.

Thanks