Furthermore, the "math" of mortgages allows for strategic acceleration. By making one extra payment per year—or paying bi-weekly instead of monthly—a borrower can significantly alter the amortization schedule. Because interest is calculated on the remaining balance, any early reduction in principal prevents that specific amount of money from ever accruing interest again, effectively shortening the loan term and reducing the total interest paid. 4. Adjustments and Variables
The mathematics becomes more complex with . Unlike fixed-rate loans, ARMs use a variable mortgage mathematics
The Architecture of Interest: An Analysis of Mortgage Mathematics Furthermore, the "math" of mortgages allows for strategic
To calculate the monthly payment for a standard fixed-rate mortgage, we use the : The Amortization Process The term "amortization" comes from
M=Pr(1+r)n(1+r)n−1cap M equals cap P the fraction with numerator r open paren 1 plus r close paren to the n-th power and denominator open paren 1 plus r close paren to the n-th power minus 1 end-fraction = Total monthly payment P = Principal loan amount r = Monthly interest rate (annual rate divided by 12) n = Total number of payments (months) 2. The Amortization Process
The term "amortization" comes from the Old French amortir , meaning "to kill." In finance, it refers to "killing off" a debt over time.