how do you calculate amortization?


also whats the difference between 15 year balloon and a 15 year amortization? it would great if you can specify some real numbers. thanks!

a 15-year balloon payment is a "30 due in 15 or 30/15". It means that your payments are amortized over 30 years (to keep them low and more affordable) but the loan has to be paid off in 15 years. (you will owe the remaining balance in a lump sum once the 15-years are up...if you choose to keep the loan that long)

With a 15-year fixed, your payment are amortized over 15 years instead of 30 (so your payments are higher) but once the 15-years are up, the loan will be completely paid off. Why? Because you made a higher payment to cover both principal and interest to pay it off on time.

alvin,
i'd recommend getting a mortgage calculator, especially as i'm sure you'd like to be able to crunch numbers on site at a prospective investment property. i have a Qualifier Plus IIx by Calculated Industries and love it! This is not an ad for Calculated. I know a lot of guys will say, "oh my financial calculator calculates payments, future value, amortization, etc.", but i think the mortgage calculators are more user friendly for this purpose.

Sammy

http://www.webworxstudio.com/lender/proedge/, click on download. If you click on payment it will show you how each standard program is amortized, after you input the required information. By simply doubling your monthly payment up once a year you will get the exact same result as making bi-weekly payments without having to pay the 3rd party fee to set that option up. It will show you the amortization breakdown by month or year. It's free.

First you must define some variables to make it easier to set up:

P = principal, the initial amount of the loan
I = the annual interest rate (from 1 to 100 percent)
L = length, the length (in years) of the loan, or at least the length over which the loan is amortized.

The following assumes a typical conventional loan where the interest is compounded monthly. First I will define two more variables to make the calculations easier:

J = monthly interest in decimal form = I / (12 x 100)
N = number of months over which loan is amortized = L x 12

Okay now for the big monthly payment (M) formula, it is:

J
M = P x ------------------------

1 - ( 1 + J ) ^ -N

where 1 is the number one (it does not appear too clearly on some browsers)

So to calculate it, you would first calculate 1 + J then take that to the -N (minus N) power, subtract that from the number 1. Now take the inverse of that (if you have a 1/X button on your calculator push that). Then multiply the result times J and then times P. Sorry, for the long way of explaining it, but I just wanted to be clear for everybody.

The one-liner for a program would be (adjust for your favorite language):

M = P * ( J / (1 - (1 + J) ** -N))

So now you should be able to calculate the monthly payment, M. To calculate the amortization table you need to do some iteration (i.e. a simple loop). I will tell you the simple steps :

Step 1: Calculate H = P x J, this is your current monthly interest
Step 2: Calculate C = M - H, this is your monthly payment minus your monthly interest, so it is the amount of principal you pay for that month
Step 3: Calculate Q = P - C, this is the new balance of your principal of your loan.
Step 4: Set P equal to Q and go back to Step 1: You thusly loop around until the value Q (and hence P)
goes to zero.

LOL! yeah......I'm sure he wants to take the time to calculate the amortization by hand....

Alvin, here is a another cool calculator website http://www.drcalculator.com/

also Sammy D is correct about the Calculated Industries calculators. They are my favorite, and you can ordr tham online from thier website.

LOL! Well... he asked so I gave it to him. He didn't specify whether it was by hand, calculator, or osmosis.

So did you try it Alvin?