Amortization is the gradual reduction of debt over a certain period of time as your debt is paid off in equal installments. One part of the payment goes toward the loan and the other part towards interest. Your loan balance will slowly decrease at first, meaning your payments build equity gradually in the first years of the mortgage. When you hit the final years of your mortgage you build equity more quickly.
Your amortization schedule shows how much money you pay on your loan and interest over time. Our calculator is designed to show the reduction of your mortgage debt and display the breakdown of your interest paid.
What is an amortization schedule?
An amortization schedule is a table that shows each payment on a mortgage over time. For each payment, a portion is applied toward the balance and interest. The amortization schedule displays how much goes toward each section of your mortgage payment.
At first, most of your payment goes toward the interest rather than the principal mortgage balance. As your term goes on, a larger share of your payment goes toward paying off your principal until the loan is paid in full at the end of your term.
What are the benefits of using an amortization calculator?
An amortization calculator allows you to get a better idea of what your mortgage payment schedule looks like. Accessing this schedule is the easiest way to visualize the concept and know why you’re paying these amounts.
An amortization calculator gives you:
- How much total interest and principal has been paid at a certain date.
- The amount of interest and principal paid in a particular payment.
- How much principal you still owe on your mortgage at a specific date.
- How extra payments can shorten your mortgage’s term.
The mortgage amortization calculator is used to:
- Determine how much extra you would need to pay every month to repay your mortgage in a less amount of time. For instance, you can compare the total cost of a shorter term such as 15 years with a 30 year longer term.
- Figure out how much principal you currently owe or will owe in the future.
- Determine how much equity you have.
- Learn how much interest has been paid over the life of the mortgage or in a particular year.
- Let you know when you’re approaching 20% equity so you can cancel your private mortgage insurance.
Taking the time to look at amortization is helpful if you want to understand how your mortgage loan works. An amortization calculator gives you a detailed look at the components of your loan. This allows you to see how much is being spent on interest instead of just focusing on the monthly payment.
People often make decisions based on their monthly payment and how affordable it is. However, interest costs should always be taken into consideration to measure the real cost of what you will be paying. A lower monthly payment sometimes means a higher interest if you stretch out the payment period, so using an amortization calculator is a great resource to give you the entire detailed picture.