Amortization Schedule

What is an Amortization Schedule?

The term amortization refers to the process of repaying your home loan by making installment payments. The schedule is simply a table that details how each payment is allocated to the total debt and other associated expenses.

When you look at the amortization table for your home loan, it will show:

• How much of each payment you make is applied toward the principal balance of your home loan
• What amount goes to interest expense
• What additional amounts allocated to insurance and property tax escrow accounts and Private Mortgage Insurance (PMI), if applicable.

Review your Schedule

Understanding how your monthly mortgage payments are allocated is a valuable tool for helping you understand the real cost of purchasing a home. When you're considering how much your home will actually cost you, the amount of money you will end up paying toward the loan is a much more accurate expense representation than the purchase price for the dwelling.

Initial Financing Decisions

If you're in the process of buying a home, it's a good idea to look at sample schedules for amortization when you're trying to decide among the different home loan options available to you. It isn't unusual for people to select shorter term loans when they see the real dollar value in savings over the life of the loan spelled out in black and white on amortization comparisons. For example, if you’re trying to decide between a 15 year loan and a 30 year loan, viewing project schedules may help you understand the real financial impact of the choices you make.

Early Payoff Options

Reviewing the scheduled amortization for your home loan provides a great deal of valuable information, especially if you are interested in figuring out how to pay off your mortgage loan early. When you look at your amortization schedule, you will notice that early in the term of your loan very little of your monthly payment goes toward the principal of your home. Instead, the bulk of your early payments go toward paying interest.

As time goes by and you make the installment payments on your home loan in a timely manner, you will notice that the amount of money applied to the principal loan balance increases. If you make extra payments toward your mortgage, not only will you reduce the overall principal balance on the loan, but a greater percentage of future monthly payments will go toward principal rather than interest because the actual debt amount has been reduced.

Impact of Extra Payments

You can use an amortization calculator such as the one available at Lenders Mark to determine what impact extra payments will have on the length of time needed to pay off your mortgage loan.

Simply enter the amount of the loan, your interest rate, the length of the loan, and the expected additional monthly payment amount. When you click calculate, the form will generate an amortization schedule table that details how payments will be allocated between principal and interest and how long it will take you to pay off your loan if the additional amount is paid every month.

You can compare the table generated by the amortization calculator you received with your loan to get an idea of how much difference paying an extra amount each month can make on the length of time it will take you to get out of debt. Keep in mind that these types of general amortization schedules are designed to provide users with general information. They do not consider payments already made, escrow amounts, or the impact of variable interest rates.

Making Informed Decisions

Choosing the right mortgage loan - and making progress toward paying off your existing loan - are both important decisions that can have a serious impact on your long term financial well being. You shouldn't make such decisions without getting as much information as possible about the alternatives you are considering. When you're making a major investment, such as buying a home, or trying to figure out how to proceed with paying off your mortgage, amortization schedules can be invaluable decision making tools.