How to Amortize Interest
"Amortized interest" is interest spread out over the term of a loan. An amortized payment includes a mix of interest and principal payments that will pay off your loan within a specified time. Amortization is used for different types of loans but is probably most closely associated with mortgages. Lenders use a complex formula to determine your monthly payment.
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Instructions
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Use an amortization calculator to determine the interest on your loan. The formula for calculating the monthly payment of a loan over a specified period of time is very difficult, even if you use a computer. Mortgage calculators eliminate all of the hard and confusing computations by only asking for the basics of the loan such as the amount, the term and the interest rate.
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Enter your data into the amortization calculator and hit "Calculate." Amortization calculators such as the Amortization-Calc link gives you a monthly payment and a table showing your annual interest and principal payments. Bankrate's calculator gives you your monthly payment and also lets you see how additional one-time, monthly or annual payments will affect the time it will take you to repay your loan
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Compute your amortized payments manually using a calculator. If you enjoy complicated algebra problems, you can use a calculator to figure out your amortized payment. You will need to know your loan amount, the number of payments until it is repaid and your monthly interest rate (your annual rate divided by 12). You will also need a calculator that is capable of computing very large exponents (360th power, in this case).To determine the amount of your monthly payment ("A"), enter your data into the formula:
A = P[r (1 + r)^n]/[(1 + r)^n - 1]. "P" is the principal amount; "r" is your interest rate per payment period (one month, in the case of a mortgage); and "n" is the total number of payments (360 for a 30-year mortgage).
The formula to amortize your interest and payments for a $200,000 mortgage at 6 percent over 30 years would be $200,000[0.005 (1.005)^360]/(1.005)^360 - 1.
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