by Charlotte Wood
(last updated February 21, 2009)
Figuring out really how much you'll end up paying with your mortgage loan is sometimes a tricky business and it's all hard to put together. If you can read an amortization schedule however you're in good shape. You'll be able to look at every part of your loan separately and then how it all fits together. Your loan doesn't have to be so confusing anymore!
First off, what is an amortization schedule? An amortization schedule is a schedule of the payments of your loan, separated out into what parts are applied to interest and what parts are applied to principal. Your payments don't just go to the specific amount you borrowed, but rather factor in interest as well and the ratio or balance of principal to interest changes with each payment; it doesn't remain constant.
Amortization schedules are organized chronologically and you can follow it by the number of payment. Along with the part of the payment that's applied to interest and principal separately, it also shows you how much interest and principal you've paid to date. This is an easy way to view the quick points of your loan and to view what part of your payments go where.
Actually reading the schedule isn't too difficult. It will usually be divided into columns and you can easily follow the succession of numbers from there (e.g. principal, interest, principal to date, interest to date, principal balance). With mortgage loans most of your initial payments go toward the interest and only a small part is applied to the actual principal. (On your loan payments you can always specify a specific amount to go toward principal only). The more you pay off of your loan however the more of your payments go toward your principal balance; by about the 21st year of your loan, the interest and principal applications should balance out.
On an amortized loan, the actual payment amount always remains the same; the application of the payment is what differs. With amortization schedules you can easily see where your money is going and you can better see the state of your loan. Easy to read, amortization schedules can be a huge benefit to understanding and managing your mortgage.
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