What Is an Amortization Schedule?
Your mortgage payment is made up of your principal, interest, taxes, and insurance, or PITI. As you make monthly mortgage payments, you’re paying down your principal balance, or the amount you owe back to your lender. You’re also paying your lender interest, which is what they charge you for borrowing money from them. Typically, you make a mortgage payment each month to your mortgage lender on a payment schedule.
A payment schedule simply shows you what dates your payments are due, and how much you owe on that date. An amortization schedule, however, takes a payment schedule a few steps further.
What is an amortization schedule?
Amortization means that debts are paid off on a regular, fixed schedule over a predetermined period of time. So, I bet you can guess what an amortization schedule is.
An amortization schedule is a data table that shows the progress of you paying off your mortgage loan. The table will break down how much of your monthly payments go toward your “P” and your “I”—your principal and interest.
The loan estimate you receive from your lender will show you what your total estimated mortgage payment will be each month. With a fixed rate loan, your monthly payment amount should remain the same through the life of your loan. If your mortgage payment is $1,193.54 for your first month, it should be $1,193.54 for your 12th payment, your 200th payment, and so on (barring changes in your taxes ).
However, your payment doesn’t just get split 50/50 each month, half toward your principal and half toward your interest. Your amortization schedule will show you how much of your payment goes toward what parts of your PITI, and how that will change over time.
The majority of your monthly payments early in your amortization schedule go toward your interest. For example, for 30-year fixed-rate loan on a $250,000 home with a 4% interest rate, your total monthly principal and interest payment might be $1,193.54. For the first payment of your amortization schedule, you might pay $360.20 toward your principal and $833.33 toward your interest. As you pay off your principal and get further into your amortization schedule, more of your payment amount goes toward your principal. When you get to payment 180, for example, your payment may be split differently: maybe $655.68 goes to principal and $537.86 to interest.
Your final payment will go almost all toward your principal, with very little interest left to be paid. You might pay $1189.57 toward principal and only $3.97 toward interest. The last line of your amortization schedule will show your total interest paid and total principal paid for the entire life of your loan (in this case, 30 years), and should show that your remaining principal balance is $0.
How is an amortization schedule helpful?
Understanding your amortization schedule will help you know approximately how much you still owe on your mortgage loan. It will also allow you to look ahead in time to break down what you’ll owe at fixed points. For example, if you know that your job will require you to move in 10 years, using your amortization schedule, you will be able to estimate what you will still owe on your house at that time.
Where can I find my amortization schedule?
For many borrowers, their lender will provide an amortization schedule for their mortgage loan. However, your lender may only give you your payment schedule, which, as we talked about before, doesn’t break down how much of your payment goes towards principal, and how much goes toward interest. If an amortization schedule is not provided to you, you can ask them for one. You can also create your own schedule using an amortization schedule calculator available for free, online.
It’s important that you know what you’re paying for each month when you make your mortgage payments, which is why seeing your amortization schedule can be very helpful. Looking at your schedule might also spark questions that you can discuss with your mortgage lender about your mortgage loan or monthly payments.