Ensure our Youth are Financially Savvy
Ensuring that our youth are financially savvy and ready to take on one of life’s most important aspects (finances) is crucial to our society’s future. Understanding how loan amortization works using an amortization calculator is an important part of this process. These skills will become particularly useful when a young person grows up and purchases a home.
An amortization calculator is used in the calculation of the amount you pay on a month to month basis for your loan or house mortgage. Aspects of the mortgage such as the principal, interest and the duration you pay the loan are the most common variables used to in this calculation. Ideally this term is used in the repayment of mortgages but it can also be used in other aspects of credit such as credit card payment. Mostly it involves the calculation of the exact amount you’ll be paying for the interest and for the principal every month.
The first step in the amount you will pay every month is to determine the exact principal of the loan or mortgage. Basically, the principal is the exact amount you borrow. This amount can sometimes include any associated cost that will accompany the loan. Mostly the processing fees are included in these associated costs and add up to the money which will be regarded as your principal.
Once you have the determined the principal, the next step is determining what your monthly pay will be. The monthly pay is the amount that you will pat with to go to your loan repayment. To do this, you will need to know the interest rate and also the period you will be paying the loan. For instance, if your principal is $10000, the pay duration is ten years and interest rate is five percent, your monthly payment will be around one hundred and six dollars.
After you know your monthly payment, you now determine the exact amount of interest you will be paying every month. Basically, you will pay more in terms of interest in the initial stages of the loan repayment; this amount will keep on reducing as the months proceed. Also, your principal repayment will be low in the initial months and keep increasing as the months go by.
Using the example given above, you should expect to pay around $41.67 as interest for the first month. This amount will be calculated using the total number of months it will take to pay the mortgage in this case one hundred and twenty months. The interest and the principal are also used in the calculation.
This result will come from multiplying ten thousand dollars with the five percent interest and then dividing with one twenty months.Once you have the above figures, you’ll now come up with a repayment schedule. For instance, if you are using the above example, you would pay around forty two dollars for the interest and around sixty four for the principal in the first month.
These two figures basically will total your monthly pay. As the months proceed, you’ll apply the same formula for calculation of these values. This will go on until you are done repaying the loan.
The amortization calculator can be found online. Most of the software that calculate these amounts can easily be downloaded online. Also, there are programs such as spread sheets you could use. Though the internet can be helpful, sometimes it is good to know how these amounts are calculated.