How to Calculate Amoritzation
- 1). Divide your annual interest rate by 12 to find the interest rate per month. In the example, 12 percent divided by 12 months equals 0.01.
- 2). Multiply the interest rate per month by the remaining principal before the payment. In the example, $100,000 times 0.01 equals $1,000 of interest for the month. This is how much interest the borrower pays in the first month.
- 3). Subtract the interest for the month from the loan payment to calculate the principal payment. In the example, $1,400 minus $1,000 equals a principal payment of $400 for the month.
- 4). Subtract the principal payment for the month from the remaining principal to calculate the new remaining principal. In the example, $100,000 minus $400 equals $999,600. This is the number you would use for calculating the amortization for the next month.
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