![]() $1,716 (monthly payment) - $700 (current month’s interest fee) = $1,016 (current month’s principal payment).$8,400 (current annual interest fee) / 12 (months) = $700 (current month’s interest fee).$240,000 (principal balance) x 3.5% (interest rate) = $8,400 (current annual interest fee). ![]() To calculate the amortization on this example, let’s plug these numbers into the formula we mentioned above: Later, we’ll show you how to calculate this monthly payment manually-if you’re interested (and brave). Using our mortgage calculator, your monthly mortgage payment would be $1,716 (principal and interest only). To cover the rest, you take out a 15-year fixed-rate mortgage at a 3.5% interest rate-that’s a total home loan of $240,000. Let’s say you work with a top agent to buy a $300,000 house with a 20% down payment (that’s $60,000 in cash). We know calculating amortization can make you want to throw a desk out the window. This same process repeats every month until your loan is completely paid off. What remains is how much will go toward principal for that month. Next, divide that by 12 months to know your interest fee for your current month.įinally, subtract that interest fee from your total monthly payment. To calculate amortization, first multiply your principal balance by your interest rate. (Hint: Only do a refi if you’re able to score a lower interest rate and a shorter amortization period.) This would change things like your interest rate, monthly payment amount and amortization period. It’s a chart that shows you how much of each payment will go toward interest and principal-until you pay off the house!Īn amortization period tells you how long it’ll take to pay off your mortgage, while a mortgage term tells you how long you are locked into a specific mortgage contract with your lender.įor example, you could do a mortgage refinance to change your mortgage term. Keep in mind, the longer your term, the more you’ll pay in total cost.Īn amortization schedule or table gives you a visual countdown to the end of your mortgage. ![]() When you take out a mortgage to buy a house, you’ll agree to a specific amortization plan, or repayment plan, with your lender-usually a 15-year or 30-year term. As you pay down your mortgage, you'll pay less in interest. It's based on a percentage of your mortgage balance (the principal). This is a fee a lender collects for letting you borrow money. As you pay it back, your principal balance goes down and your equity (how much of the house you own) goes up. This is the original chunk of money you borrow from your lender to buy a house. But amortization is only concerned with two of those categories: Your monthly mortgage payment will go toward a number of different categories. ![]() In the mortgage world, amortization refers to the paying off of a loan over time through monthly payments. We’ll help you define what it means and walk you through a typical amortization schedule using our mortgage calculator so you’ll know how to pay off your house as fast as possible! Amortization isn’t exactly the most exciting subject. When your lender mentions an amortization schedule, your eyes might glaze over. Amortization-what a crazy word! This hard-to-say financial term pops up whenever you borrow money to buy big-ticket items like a house.
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