Use our Mortgage Amortization Calculator to understand how your principal and interest payments change and how your mortgage balance gets paid off over time. Although the amortization formula used to calculate your payment never changes, the amortization schedule is unique for every loan based on the interest rate, mortgage length, loan amount and program. Our Mortgage Amortization Calculator uses these inputs to determine the principal balance and payment breakdown for any loan.Watch our Mortgage Amortization Calculator "How To" video
From a technical standpoint, amortization is based on a mathematical formula that calculates the exact monthly payment required to both pay your lender the interest they are due according to the terms of your mortgage while also paying off your mortgage balance in full over the course of your loan.
From a mortgage borrower's standpoint, amortization determines your monthly mortgage payment, and this is where the mathematical formula and practical application of amortization meet. This is because your mortgage payment is comprised of both principal and interest and that composition changes a little with every payment, even though the payment you make to the lender never changes, which is one of the main advantages of a fixed rate loan.
For example, let's say your monthly mortgage payment is $2,000. One month, that payment may consist of $1,500 in interest and $500 in principal. The next month, your mortgage payment is still $2,000 but the breakdown is $1,475 in interest and $525 in principal. The split between principal and interest gradually shifts over the course of your mortgage but your monthly payment remains the same.
With each payment, you payoff a small amount of your mortgage which means you owe the lender less in interest expense, which in turn increases the principal component of your next payment. In short, less interest expense means you have more room in your payment to pay down your loan balance. This dynamic is why at the beginning of your mortgage, your payment consists of mostly interest -- because your loan balance is high -- and toward the end of your mortgage your payment is mostly principal because your required interest payment is lower as your loan balance slowly declines.
Our calculator uses the following inputs to determine the amortization schedule for a mortgage:
Mortgage Type. You can select a fixed rate monthly mortgage or a bi-weekly mortgage to compare the amortization for different types of loans. You pay off a bi-weekly loan faster because you make the equivalent of an extra monthly payment each year.
Mortgage Amount. While your loan amount does not directly impact how your mortgage amortizes, a higher loan amount means you pay a higher monthly payment.
Mortgage Term. This is the length of your mortgage. The longer your mortgage, the more interest expense you pay and the flatter the amortization curve.
Interest Rate. The higher your interest rate, the more interest you pay at the beginning of the mortgage and the steeper the amortization curve. This is also why loans with higher mortgage rates require higher payments.
Our Amortization Calculator shows you your monthly payment and also produces a chart that shows you the split between principal and interest payments annually. This amortization schedule also illustrates how this split changes as your principal balance gets paid down over the course of your loan.
As you can see from the chart, amortization does not work in a straight line, meaning that for a 30 year mortgage you have not paid off half of your mortgage at the halfway point of the loan, which is year 15. In fact, depending on your mortgage rate and other factors it can take longer than 20 years to pay down half of the loan for a 30 year fixed rate mortgage.
Understanding how amortization works is important because it enables you to understand your loan balance over the course of your mortgage. You can use this information to determine how much equity you have in your home which is useful if you are considering refinancing your mortgage or taking out a home equity loan.
Understanding the how your interest and principal payments change over time also has tax implications and means that your mortgage tax deduction is higher at the beginning of your loan and decreases over your loan term.
Mortgage amortization is the "mechanism" or formula that determines how your mortgage gets paid off over time. Unless you have any interest only mortgage, when you make a mortgage payment your payment is comprised of principal and interest. The principal component of your mortgage payment goes to paying down your mortgage balance while the interest component of your payment goes to the lender as payment for borrowing the money. Although your monthly payment does not change, the split between principal and interest changes a little every month. An amortization formula determines the split between principal and interest for each payment as well as the monthly payment that allows you to pay off your mortgage balance over the life of your loan. From the borrowers standpoint, you make the same monthly mortgage payment over the course of your mortgage while amortization ensures that your loan is paid in full with your final payment and the lender receives the interest due according to the terms of your loan. Use our Mortgage Amortization Calculator to understand how your loan balance gets paid off over the course of your mortgage.
In the beginning of your mortgage, your payment is comprised of mostly interest and relatively little principal. The mix between interest and principal changes a little every monthly and your payment is comprised of mostly principal by the end of your mortgage. It is also important to highlight that mortgage amortization does not work "evenly" over the course of your loan. In other words, you have not paid off half of your mortgage at the halfway point of your loan. For example, for a $380,000 30 year fixed rate mortgage with a 4.0% interest rate, your mortgage balance is approximately $245,000 at the end of year fifteen, or the halfway point, which means you have only paid off $135,000 of your mortgage. Using the same example, the loan is not half paid-off until after year nineteen. For a 30 year fixed rate mortgage, it takes approximately nineteen to twenty three years to pay-off half the loan amount, depending on your interest rate. Our Mortgage Amortization Calculator produces a chart that shows you how your principal and interest payments change over your loan term.
Amortization for a fixed rate mortgage works differently than for an adjustable rate mortgage (ARM). With a fixed rate mortgage, the mortgage term used to determine the mortgage amortization schedule does not change over the life of the loan. For example, the monthly mortgage payment for a 30 year fixed rate mortgage is always based on a 30 year mortgage term. With an adjustable rate mortgage, the mortgage balance re-amortizes over the remainder of the mortgage term every time the interest rate adjusts. For example, at the end of year 18 of an ARM, the monthly payment is based on the current loan balance, new interest rate and a twelve year loan term (because the mortgage has twelve years remaining). While amortization is relatively straightforward for a fixed rate mortgage, borrowers should understand how it can impact the monthly payment for an ARM over the life of the loan. With our Mortgage Amortization Calculator, you can select the type and length of mortgage you want to analyze.
Although math formulas are not usually that exciting, mortgage amortization should capture the attention of all borrowers. In short, amortization not only determines your monthly payment but it also allows you to know your loan balance at any point in time. If you are looking to payoff or refinance your mortgage, knowing your exact loan balance is very relevant information. It is also helpful to track how your homeowner equity grows over time as you pay down your loan and hopefully your property value appreciates. Finally, mortgage amortization can impact your tax bill as your interest expense is highest the first several years of your loan. The higher your interest expense, the greater your mortgage tax deduction. It is also important to understand that given the way amortization works your tax benefit typically fades over time as you pay more principal and less interest.
Understand how mortgage amortization works and how the split between principal and interest that comprises your monthly payment changes over the course of your mortgage
Understand how the length of your mortgage affects your monthly payment and total interest expense over the life of your loan
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"How does paying down a mortgage work?” CFPB. Consumer Financial Protection Bureau, August 5 2016. Web.