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Calculating an Amortization Schedule for Your Mortgage

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A mortgage amortization schedule is a useful tool in determining how fast you’ll pay off your mortgage and how much you’ll end up paying in interest throughout the life of the loan.

If you’re a relatively new homeowner, you may be surprised at the size of your loan balance compared to how much you spend monthly on mortgage payments — that’s due to your mortgage amortization schedule. In the beginning, only a small portion of your early payments actually go toward reducing your balance. A big chunk of what you spend monthly during the early life of your mortgage goes toward paying off the interest.

Figuring out how your mortgage amortizes may seem like some daunting math, but MYMOVE is here to make it easy. Find out more about how the amortization process works and how you can determine your payment schedule to know exactly where your home loan stands.

What is mortgage amortization?

When you buy a house with a fixed-rate mortgage (the most common loan type for homeowners), you receive an amortization schedule for your mortgage. Although the amount you pay to your lender is the same each month, there’s a big difference between how much of that goes toward paying off your debt and how much pays off the interest.

Like we said earlier, the amortization schedule for a mortgage is interest-heavy at the beginning. That means your payments mostly go to the lender and are not actively lowering your loan balance. If you sell your home within a few years of buying it, you might not have much more equity than when you bought it, despite all of your mortgage payments.

But as time passes, the amortization schedule for your mortgage begins to shift and your loan balance payments become higher.

How mortgage amortization works

Your amortization schedule breaks down every single scheduled payment for the life of the home loan. With a 30-year mortgage, your schedule shows each month of the 30 years and how much of that fixed payment goes toward interest versus the principal (the amount borrowed). The schedule also shows your remaining mortgage balance after each monthly payment. It’s an extremely granular way to see how your mortgage gets paid down over the course of many years.

An amortization schedule also illustrates how much you’ll pay in interest over time. When comparing loan options, particularly those with different interest rates or term lengths, creating an amortization schedule is an effective way to discover the true cost of each loan option you’re considering. This process also helps you create a realistic budget so you can find the right house at the right price.

Calculating mortgage amortization

An initial amortization schedule should be included with your mortgage paperwork, but the numbers change if you start to make extra principal payments on the loan. There are a number of online amortization schedule calculators that help give you an updated schedule based on different variables.

But if you want to do the calculation by hand, you can also use the formula below to figure out how much your mortgage payment will be each month.

Mortgage payment formula: M= P[r(1+r)^n/((1+r)^n)-1)]

Here are the factors you’ll need to know to calculate your monthly mortgage payment correctly:

      • M = monthly mortgage payment
      • P = principal loan amount
      • r = monthly interest rate (your annual interest rate divided by 12)
      • n = Number of loan payments you’ll have to pay (For reference: A typical 30-year loan with 12 monthly payments equals 360 payments)

Simply input your numbers in the categories above to come up with your fixed monthly mortgage payment over the life of the loan.

Use an amortization table to calculate your home loan payments

As you start to pay down your mortgage, you may consider making extra principal payments in order to pay off your debt faster and even save money in interest over time. Create your own mortgage amortization schedule by laying it out in a table so you can find out when you can expect to pay off the loan’s interest and start solely paying off the principal.

As an example, let’s say you have a $200,000 mortgage for 30 years with a fixed rate of 4.0%. Here’s what the first five months of payments look like if you start making payments in December 2019:

Payment Date Payment Amount Principal Interest Total Interest  Balance
December 2019 $954.83 $288.16 $666.67 $666.67 $199,711.84
January 2020 $954.83 $289.12 $665.71 $1,332.37 $199,422.71
February 2020 $954.83 $290.09 $664.74 $1,997.12 $199,132.62
March 2020 $954.83 $291.06 $663.78 $2,660.89 $198,841.57
April 2020 $954.83 $292.03 $662.81 $3,323.70 $198,549.54

Use an Excel spreadsheet or Google Sheet to track your progress in terms of both the interest paid and the remaining balance on your mortgage. This allows you to visualize your payments over the life of the loan and budget accordingly!

Why it’s important to understand mortgage amortization

Analyzing how your mortgage payments break down between interest and principal helps you in a number of ways. First, you can see the true cost of different interest rates when you’re comparing loan options early on. A quarter of a percentage point may not seem like a lot at first, but you can quickly see the difference when you look at the amount of interest paid month by month.

Making an amortization schedule also helps you determine the true cost of a home so you can accurately budget for all of your expenses, from future repairs to ongoing utility payments.

Finally, once you purchase a home and start making payments, an amortization schedule for your mortgage reveals how much debt you still have on the loan at different periods of time. If you’re thinking about selling in the future, your exact loan balance tells you how much you’ll make off the sale of the house after paying the remaining mortgage. You can also use the information to plan additional principal payments and potentially shave off a few years of your mortgage altogether.

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