Amortization is the process of paying off a debt over a specified period of time in equal money installments. Some of the payments that you make will go toward the loan principal while another portion of those payments will go toward the overall interest.
The amount of that payment that goes toward the principal loan with mortgage amortization will start out fairly small. The idea is that it then increases month after month. The amount of money that goes toward the interest on that loan continues to decline month after month for fixed-rate loans.
You amortization schedule will show you two different variables:
- How much you pay in principal over time
- How much you pay in interest over time
You can use an amortization calculator to break down those payments over your loan term.
What Is An Amortization Schedule?
Many people have no idea what an amortization schedule is. The word sounds frightening enough.
Luckily, it’s not complicated in the least. Think of it as a table. This table lists each regular payment on a mortgage over a specified period of time. A portion of each payment you make will be applied toward both the principal loan balance and the interest on that loan. The amortization schedule will show you exactly how much is going towards each one of those components.
At the beginning, a majority of your payment will go towards the interest component compared to the principal. The idea is that, as your loan progresses, the tables will turn on your payment schedule and more will start going toward the principal until you pay that loan off in full at the end of its term.
There are a few different variables that are used to calculate amortization:
- The principal and interest that are being paid in particular payments
- The amount of principal and interest that have been paid up to a specific date
- The amount of principal that you owe on your mortgage still
- How much time you can reduce on your mortgage term if you make one or more added payments
A mortgage amortization calculator can help you to determine the principal that you owe either now or in the future, how much money you would need to start paying monthly if you wanted to reduce that term from 30 years to, let’s say, 25 years, and how much interest you have paid over a specific time of the loan.
Beyond that, an amortization calculator can help you to figure out how much equity you have!
Understanding Your Amortization Schedule
Understanding your amortization schedule can help keep you on track over the years of your mortgage
It is important to us that our first-time home buyers have an idea of what to expect when going through the mortgage process, as Neswork team believe’s it is important to educate our clients so that they can become creditworthy borrowers.
Looking for the right mortgage broker in Denver Colorado to work with?
Make sure to get in contact with us!