How the Bret Whissel Amortization Method Works
The Bret Whissel Amortization Calculator is a staple tool for US citizens looking to understand the mechanics of debt. Amortization is the process of spreading out a loan into a series of fixed payments over time. While each payment is identical, the ratio of interest to principal changes.
The Amortization Formula
The monthly payment ($M$) is calculated using the following annuity formula:
$M = P \frac{r(1+r)^n}{(1+r)^n - 1}$
- P: Principal loan amount
- r: Monthly interest rate (Annual Rate / 12 / 100)
- n: Total number of months (Years × 12)
Practical Example
Imagine a $200,000 loan at a 5% interest rate for 30 years. In the first month, your interest is calculated as $200,000 \times (0.05 / 12) = \$833.33$. If your fixed payment is $1,073.64$, then only $\$240.31$ goes toward the principal. By year 25, those figures flip, and the majority of your payment reduces the balance.
Frequently Asked Questions
It is a classic style of financial calculator used to generate highly detailed schedules showing exactly how much of every dollar goes to interest versus debt reduction.
Extra principal payments reduce the balance faster, which in turn reduces the interest charged in every subsequent month, effectively shortening the loan term.
Because interest is calculated based on the current balance. When the balance is high (at the start), the interest portion is naturally higher.
Yes, this formula works for any fixed-rate installment loan, including mortgages, auto loans, and personal loans.
It is mathematically accurate according to the standard amortization formula, though actual lenders may use slightly different day-count conventions.