Buying a home is one of the largest financial investments a person will make in their lifetime, which is why most people need a mortgage to help them get into the property they’ve always dreamed of owning.

If you are on the hunt for the perfect home that fits your lifestyle and budget, a mortgage amortization schedule is extremely valuable because it presents the true cost of a house and the exact number that you would owe each month.

In a nutshell, an amortization schedule can help you:

  • Find the perfect mortgage that matches your budget and goals
  • Determine how much time you can chop off your loan by making a few extra payments
  • Calculate potential savings by refinancing your mortgage

What is Mortgage Amortization and How Does the Schedule Work?

While the term itself sounds complex, “mortgage amortization” simply translates to a schedule that breaks down how much you will pay each month in interest and principal until your mortgage is paid off in full. A mortgage amortization schedule is most beneficial because it can help you plan out a consistent month-to-month payment for your home and overall budget.

Interest = the amount charged by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR).

Principal = the total amount of the loan, or money borrowed. If you take out a $60,000 mortgage, your principal is $60,000. If you’ve paid $10,000 of that mortgage, then your principal lowers to $50,000, and so on.

The amortization schedule can help you determine which type of mortgage fits your needs, and help you plan out the number of years in which you can pay it off.

A few key points you should note:

  • As you pay down your mortgage, the total amount of interest due will decrease with each payment.
  • During the earlier years of your loan, the majority of your payments will go toward interest, then in the later years those payments will go towards the principal amount.
  • For a long-term loan, typically 30 years, you will have a lower monthly payment, but will ultimately pay more in interest. For a shorter loan term of 10 or 15 years, you will have a higher monthly payment but save on interest over the life of the loan.

How to Calculate Mortgage Amortization

Once you have your principal amount and interest rate, you can easily plug in those numbers to calculate your monthly amortization schedule. Here is a quick step-by-step guide you can follow to make sure you’re calculating the correct numbers:

  • Let’s say your principal amount is $300,000, you will plug that number into the mortgage loan amount space.
  • Your interest rate is 5% which will be plugged into the annual interest rate (APR) space.
  • The mortgage loan term is how long you expect to pay off your mortgage, so if you chose a 30-year fixed-rate loan, you would put the number 30 into that space.
  • If you decide to tack on your annual homeowner’s insurance or Private Mortgage Insurance (PMI) you may also include those figures in the spaces provided.
  • Once computed, your monthly payment will be presented. In this case, your monthly payment would be $1,610.46.
  • You can bring up your monthly amortization schedule by clicking on the “Create P&I Amortization Schedule” button which will break down each payment for 360 months (30 years).


Need to Calculate Mortgage Amortization?

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What Does That Mean for You?

Now that you know what a mortgage amortization schedule is and how it works, you can find out how to use it to your advantage.

One of the top benefits of owning a home is building your equity, which translates to the amount of your house that you actually “own”. Your home is likely to be one of your biggest assets, so the sooner you get to paying off the principal amount, the quicker you begin to build equity. This means you will have more options when it comes time to refinance or sell your home.

If you just can’t wait to own your home or want to pay off your mortgage early, you can easily plug the amount you can afford to pay each month into this handy calculator, and see how many years you can shed off your loan based on your budget.

If you have paid down your mortgage for several years on an adjustable rate loan, but want to lock in certain rate and payment, you may consider refinancing to a fixed-rate mortgage.

Learn More

Calculate your monthly mortgage payment options with First Heritage Mortgage’s free mortgage calculator, or talk to one of our loan experts today.

The included content is intended for informational purposes only and should not be relied upon as professional advice. Consult with a finance professional for financial advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 01/22/2019.