Understanding an amortization schedule by using my free mortgage calculator will save you money. An amortization schedule is broken down on a monthly basis to show you exactly what you're paying the bank each month and how much you still owe on your mortgage loan. I could probably survey 100 people and at least 50 of them wouldn't even know how much they owe on their mortgage. These people are going to be taken advantage of at some point in the mortgage process. With some basic knowledge on mortgage calculators and interest rates you can understand when someone might be trying to trick you and you will save money in the long run.
Your mortgage is recalculated each month with an Interest Calculator based on how much principal is paid down. Your mortgage payment will always stay the same, but the principal goes up and the interest will come down as time goes on. Example below:
Enter this information into my mortgage calculator.
Mortgage amount - $100,000.00
Fixed Interest Rate - 6.0%
Years - 30
Based on that information you will see that the monthly mortgage payment is $599.55 and over the course of 30 years you will have paid $115,838.19 JUST in interest! That's more than the cost of the home itself! It's only natural to try and reduce that ridiculous number and save some money! First, we need to understand it by looking at the information from the mortgage calculator.
The graph below shows you the breakdown of each payment you make over the first few months.
Monthly Payment - $599.55
| Month |
Interest |
Principal |
Balance |
| |
|
|
$100,000 |
| Month 1 |
$500.00 |
$99.55 |
$99,900.45 |
| Month 2 |
$499.50 |
$100.05 |
$99,800.40 |
| Month 3 |
$499.00 |
$100.55 |
$99,699.85 |
First of all, in the amortization schedule the "interest payment" and "principal payment" columns will always equal your monthly payment amount of $599.55. Some of it will go toward the $100,000 that you owe, and the rest of it goes toward interest. Here's how it works:
Notice that the amount you owe is lowered by the amount of principal you pay each month (100,000 - 99.55 = 99,900.45) If you pay an extra $200.00 toward principal then it would be 100,000 - 99.55 - 200.00 = 99,700.45.
The interest payment goes to the bank for loaning you that specific amount of money. The bank tells you the yearly interest rate (6%) for added confusion because it's actually calculated monthly. Take your yearly interest rate and divide it by 12 (12 months). You can plug those numbers into my free mortgage calculator or see the graph above. 6% / 12 months = 0.50% per month. So you owe 100,000 x .005 (.50%) = $500.00 in interest for the first month (See above graph). So the less money you owe the bank, the less interest you pay each month. That's why paying principal down faster is better.
Like I said before, each month the mortgage payment is recalculated so the amount of principal you pay each month is up to you! No matter how you look at it, you owe the bank $100,000.00 and while you owe that money they want something in return (Interest). I believe banks are very fair with the interest rates they offer, whatever they might be. Otherwise you would have to save $100,000.00 to buy a home, rather than just the down payment, which means most people wouldn't ever buy a home at all.
Amortization Schedule Calculators
What Is An Amortization Schedule?
Mortgage Amortization Schedule
Print Out An Amortization Schedule For Your Mortgage Payment
|
