How to Calculate ARM Amortization
Determine the value of the variables of your ARM loan., Use the standard formula to calculate arm amortization., Use an online arm amortization calculator to determine the amortization of your ARM loan.
Step-by-Step Guide
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Step 1: Determine the value of the variables of your ARM loan.
The 3 most common forms of ARM loans are the option ARM, the hybrid ARM and the cash flow ARM.
While the characteristics of each loan category will vary, the variables used to determine the amortization of the loan remain the same:
M (monthly mortgage payment), P (mortgage principal), I(interest rate) and N (number of months).
To determine the variables in the amortization formula, review the loan contract or consult your mortgage broker. -
Step 2: Use the standard formula to calculate arm amortization.
Once you have determined the amounts of each of the 4 variables (M, I, P and N), you can insert them into the amortization formula.
The formula for calculating the amortization of an ARM loan is:
A = P(1 + I)n /(1 + I )n
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1.
Reduce the fraction in the equation by calculating the numerator.
Add the number of months (N) to the product of the interest rate (I) multiplied by the number of months (N).
Now multiply that number by I.
The numerator has been reduced.
Calculate the denominator.
Add the number of months (N) to the product of the interest rate (I) multiplied by the number of months (N).
The denominator has been reduced.
Convert the resulting fraction to a whole number and multiply it by the loan principal (P).
The resulting figure represents the length of time required to reach full amortization given the terms of the loan. , There are numerous websites on the Internet that offer free online amortization calculators.
Enter the amounts of each variable into the corresponding fields in the amortization calculator.
The resulting figure will represent the length of time required to reach full amortization given the terms of the loan. -
Step 3: Use an online arm amortization calculator to determine the amortization of your ARM loan.
Detailed Guide
The 3 most common forms of ARM loans are the option ARM, the hybrid ARM and the cash flow ARM.
While the characteristics of each loan category will vary, the variables used to determine the amortization of the loan remain the same:
M (monthly mortgage payment), P (mortgage principal), I(interest rate) and N (number of months).
To determine the variables in the amortization formula, review the loan contract or consult your mortgage broker.
Once you have determined the amounts of each of the 4 variables (M, I, P and N), you can insert them into the amortization formula.
The formula for calculating the amortization of an ARM loan is:
A = P(1 + I)n /(1 + I )n
-
1.
Reduce the fraction in the equation by calculating the numerator.
Add the number of months (N) to the product of the interest rate (I) multiplied by the number of months (N).
Now multiply that number by I.
The numerator has been reduced.
Calculate the denominator.
Add the number of months (N) to the product of the interest rate (I) multiplied by the number of months (N).
The denominator has been reduced.
Convert the resulting fraction to a whole number and multiply it by the loan principal (P).
The resulting figure represents the length of time required to reach full amortization given the terms of the loan. , There are numerous websites on the Internet that offer free online amortization calculators.
Enter the amounts of each variable into the corresponding fields in the amortization calculator.
The resulting figure will represent the length of time required to reach full amortization given the terms of the loan.
About the Author
Sandra Gutierrez
Committed to making DIY projects accessible and understandable for everyone.
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