One term that you will hear a mortgage broker say a lot is “amortization”. Because of this, I wanted to write an article explaining what amortization is, how it’s used in mortgages and what the options are. Plus, I’ll share my amortization schedule calculator to help you with your calculations.
What is amortization?
Amortization is the process of spreading out a loan into a series of fixed payments. The loan is paid off at the end of the payment schedule. Typically, with an amortization period, the monthly payment remains the same for the term of your loan, if you are in a fixed rate mortgage but can vary if you are in a variable rate mortgage. A term can be anywhere from 6 months to 10 years, with the most common term being 5 years.Your payment is divided among interest costs, paying off the loan principal and can include property taxes.
How amortization works.
To help you understand amortization, you can review an amortization table. You should have gotten one included with your loan documents. Each table will explain the payments and how much of each payment goes to interest and how much goes to principal. This is broken down into:
- Scheduled payments: Your required monthly payments.
- Principal repayment: After the interest charges, the remainder of your payment goes toward paying off your debt/the principal.
- Interest expenses: A portion goes toward interest, which is calculated by multiplying your remaining loan balance by your monthly interest rate.
When you first start paying off your mortgage, most of your payment will go toward interest. Then, after several years into your payments, things will shift. Most of your payment will eventually start going towards reducing your principal.
When it comes to a mortgage, the average amortization is between 15 and 30 years. This means that your mortgage rate, which could be a 5 year fixed, could have an amortization schedule of 30 years.
Mortgage amortization calculator.
I’ve created a calculator on my website to help you determine the amount of interest you’ll pay each month, as well as your mortgage payment. Simply punch in your mortgage amount, interest rate, amortization period, payment frequency and term. Then… voila!
To use my mortgage amortization calculator, visit the calculator page on my website.
Mortgages made simple.
If you’re ready to learn more about amortization, reach out to me today. I am more than happy to discuss amortization schedules and any other questions you may have. Give me a call at 250-826-3111, get started below or apply on my website and I’ll be in touch soon.
I am here to help you during each step of your mortgage process.