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Mortgage Amortization Schedule: What It Is And How To Calculate Yours

Hanna Kielar5-minute read

December 15, 2022


Taking out a mortgage loan for the first time can be an overwhelming experience. You’ll supply piles of paperwork. Your lender will check your credit. You’ll need to save up thousands of dollars to pay for your down payment, property taxes and closing fees.

But there’s one thing you shouldn’t stress about: knowing how much you’ll pay each month for your mortgage (before taxes and insurance).

That’s because of your amortization schedule. This is a table that lists how many monthly mortgage payments you’ll make and how many dollars you’ll be sending to your lender with each of them. Let's get into exactly how mortgage amortization works.

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What Is Mortgage Amortization?

Amortization in real estate refers to the process of paying off your mortgage loan with regular monthly payments.

Amortization With Fixed-Rate Mortgages

Maybe you have a 30-year fixed-rate mortgage. Amortization here means that you’ll make a set payment each month. If you make these payments for 30 years, you’ll have paid off your loan.

The payments with a fixed-rate loan, a loan in which your interest rate doesn’t change, will remain relatively constant. They might rise or fall slightly if your property taxes or insurance costs jump or dip.

Amortization With Adjustable-Rate Mortgages

An adjustable-rate mortgage works differently. In this type of loan, your interest rate will remain fixed for a certain number of years, usually 5 or 7. After this, your rate will change periodically – depending on the type of ARM you took out – according to the performance of whatever economic index to which your loan is tied. This means that after the fixed period, your rate could rise or fall, causing your monthly payment to do the same.

There is some uncertainty with ARMs: You never know just how high your mortgage payment could rise after that initial fixed period ends. It’s why some borrowers refinance their ARMs into fixed-rate mortgages before the fixed period ends.

The benefit of ARMs is that your initial interest rate is usually lower than what you’d get with a fixed-rate loan, which will save you money during the fixed period. ARMs can make sense for people who may move or refinance before the fixed period is over.

Amortization with adjustable-rate loans means the same as it does with fixed-rate versions: It is simply the process of making regular monthly payments, even though they might vary over time, to steadily pay off your mortgage.

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How Do You Calculate Mortgage Amortization?

Homeowners can calculate their mortgage amortization by using an amortization calculator online. These calculators ask you to add in information that pertains to your loan and then use a formula to calculate your mortgage amortization.

Play with this amortization calculator to see how different interest rates and terms impact your monthly payment. You can also see how making extra payments toward your principal impacts your interest savings and allows you to pay off your loan faster.

How Do Lenders Determine Your Monthly Mortgage Payment?

To determine the amount of interest you'll pay each month – and, indirectly, your monthly mortgage payment – your lender will divide your loan’s interest rate by 12 to calculate your monthly interest rate. Your lender then multiplies your current loan balance by this figure. This determines how much interest you pay in a given month.

Your lender will then determine how much of a payment you'll need to make each month to pay off your loan by the end of your term, whether that term is 15 years, 30 years or some other number.

This is why you pay more interest at the beginning of your loan's term than you do in later years: Each time you make a monthly payment, the balance of your mortgage gets slightly smaller. That smaller balance means that you'll pay less interest over time.

What Is A Mortgage Amortization Schedule?

An amortization schedule, often called an amortization table, spells out exactly what you’ll be paying each month for your mortgage. The table will show your monthly payment and how much of it will go toward paying down your loan’s principal balance and how much will be used on interest.

When you first start paying off your mortgage, most of your payment will go toward interest. By the time you get several years into your payments, this will start to shift, with most of your payment going toward reducing your principal balance instead.

An amortization table will also show the beginning balance of your mortgage payment each month and the remaining balance after you make your payment.

How Do You Create A Mortgage Amortization Schedule?

What, then, will your amortization schedule look like? That depends largely on the type of loan you take out and your interest rate.

Say you're approved for a 30-year mortgage for $200,000 at a fixed interest rate of 4%. Your monthly payment to pay off your loan in 30 years – broken down into 360 monthly payments – will be $954.83, not counting any money you must pay to cover property taxes and homeowners insurance.

In the table below, you can see that a whopping $666.67 of that first payment will go toward interest with only $288.16 going toward principal. That first payment will reduce the principal balance of your loan to $199.711.84.

Gradually, more of your payments will go toward principal than interest. For instance, by payment 351, only $31.25 of your payment will go toward interest and $923.58 will go toward reducing your principal balance.

Mortgage Amortization Schedule Example

























































































































The Importance Of Understanding Your Amortization Schedule

By studying your amortization schedule, you can better understand how making extra payments can save you a significant amount of money. That’s because of interest. The faster you whittle down your principal balance, the less interest you’ll have to pay.

Mortgage Amortization Acceleration Example

Here's an example: Say you take out the same $200,000 30-year, fixed-rate loan with an interest rate of 4%. If you pay $100 extra toward your principal balance with each monthly mortgage payment, you'll save more than $26,854 in interest payments if you take the full 30 years to pay off your loan.

That's a big impact from just $100 a month. It’s why understanding how your monthly payments are applied, and the savings you can generate by paying a bit more each month, can bring you significant savings.

The Bottom Line

You’ll be hit with plenty of numbers when you take out a mortgage. Make it a priority to review your amortization schedule. It’s important to know exactly how much you’ll pay each month during the life of your loan.

By analyzing just how much of each of your payments, especially in the early days of your loan, go toward interest, you might be inspired to pay extra each month to drive down that principal balance.

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Hanna Kielar Headshot

Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto, RocketHQ, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.