A calculator that aids to govern the periodic amount payments any dues on loans mainly mortgages, can be calculated with ‘amortization calculator’, and the process to follow this method is called as ‘amortization’. So, at some or the other point of time you will be looking to use the ‘Amortization calculator’ to calculate your loans that need to be paid monthly. Today in this article we shall know what actually ‘Amortization means’, the advantages or uses of Amortization calculator and the formula used to calculate Amortization.
Understanding the term Amortization
Basically, ‘Amortization’ is defined as the payment of debts with certain fixed repayment schedule at regular instalments in a period of time. This is applicable for repayment of loans of cars or mortgage. On the other hand ‘Amortization’ also denotes to spending of capital expenses for intangible assets in a specific duration that account payment of taxes.
Methods and formula to use Amortization Calculator
Here, we shall be talking about the formula and the method to calculate mortgages which need to be paid periodically under ‘Amortization calculation’. Calculation that helps to land at periodic payment amount imagines that the initial payment is not due on first payment day of loan; however somewhat on one full period of payment of loan. The following formula can be used to calculate ‘Amortization factor’ which is,
A = periodic amount to be paid
P = principal amount, net initial payment (subtract any down – payments)
i = periodical interest rate
n = number of total payment
The above formula is valid if i > 0, or if i = 0 then A = P / n
Uses of Amortization
Amortization comes into use mainly based on the following factors like; when the time period of various intangible assets are amortized differ with a huge extent. Here, the time period can be for few month, years or even more than 30 or 40 years. For this an asset needs to be amortized which is the basic rule that needs to be followed by each and every individual. Over this, amortization is to be above the approximate useful life or even till loan tenure is over, or even in the case of bond or loan matters. For instance, if an intangible asset has no defined life such as a good will, then such an asset cannot be amortized.
On the other hand an important factor that has to be noted is ‘amortization’ defines basically the intangible assets, and the term ‘Depreciation’ talks about tangible assets; and term ‘depletion’ means natural resources all together.
On the whole the amortization calculator gives out annual or the monthly amortization schedule of one time fixed interest loan. It also gives out the monthly payment along with total interest that is to be paid.
Calculatorstool.com website provides a live calculator that helps the individual calculate their loan amount that is to be paid periodically. Pre-requites to calculate Amortization amount is ‘loan amount’, ‘loan term’ and ‘rate of interest’ on the same. With these three values the Amortization value can be calculated.