Mortgage amortization schedule: What it is and how to calculate yours

A mortgage amortization schedule lists all the payments you’ll make on your loan, how much is due with each payment, and how much of each payment will go toward principal and interest. This allows you to keep track of how much progress you’ve made chipping away at your loan balance.

What is mortgage amortization?

Amortization in real estate is the process of paying off your mortgage loan over a specific period with regular payments. Part of each payment will go toward paying down the principal balance, and part will go toward paying interest. The amount of each will vary over time. The amortization period is how long it will take to pay off your mortgage in full. The amortization table does not include homeowners insurance or property taxes, which are extra expenses you also have to pay along with principal and interest.

Amortization with fixed-rate mortgages

The most popular type of home loan is a 30-year fixed-rate mortgage. When a mortgage has a fixed interest rate, that means your interest rate is set when you first take out the loan and never changes. As a result, you’ll have predictable monthly payments. Keep in mind that the amount you owe in property taxes and homeowners insurance can change because they’re both based on the value of your home, which usually increases as time goes on. However, amortization with this loan type means you’ll make the same payment each month. If you make these payments for 30 years, you’ll have paid off your loan.

When you first start making mortgage payments, most of each payment will go toward paying interest. As your mortgage amortizes over time, more of each payment will be applied to the principal.

Amortization with adjustable-rate mortgages

An adjustable-rate mortgage (ARM) 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 and monthly payment will change periodically. The adjustment period tells you how often your rate will change, typically annually or every six months. This means that after the introductory period, your payment may go up or down and can fluctuate with the market.

Like a fixed-rate mortgage, an ARM amortizes as you make monthly payments to pay down your loan balance. The schedule will tell you how much you’ll need to pay each month to pay off the loan. However, the actual amount you owe will vary over the course of your loan based on market conditions. You’ll need to be able to cover a higher payment if your interest rate adjusts up.

How to use a mortgage amortization calculator

You can use an amortization calculator to figure out your monthly payment based on information you provide about your loan amount, interest rate, and loan term. Just follow these simple steps:

1. Enter your loan amount.
2. Enter your interest rate.
3. Enter your loan term.
4. Type in your loan start date.
5. If you plan on making extra payments, enter the amount and frequency.

Experiment with our amortization calculator to see how different interest rates and loan terms impact your monthly payment. You can also see how making extra payments toward your principal can help you save on interest and pay off your loan faster.

How are mortgage amortization schedules made?

Amortization schedules are generated based on the information you enter about your loan. The results will depend largely on your interest rate, the amount of your loan, and the type of loan you decide on.

Let’s say you’re approved for a 30-year mortgage for $350,000 at a fixed interest rate of 6%. Your monthly payment to pay off your loan in 30 years, broken down into 360 monthly payments, will be $2,098, not including property taxes and homeowners insurance.

In the table below, you can see that a whopping $1,750 of that first payment will go toward interest, with only $348.43 dedicated to principal. That first payment will reduce the principal balance of your loan to $349,651.57.

Gradually, a larger portion of each payment will go toward principal and less will go to interest. By your final payment, only $10.44 will go toward interest while $2,087.99 goes toward wiping out your principal balance.

Monthly mortgage amortization schedule example

Here’s an example of what you can expect an amortization schedule to look like for that 30-year $350,000 mortgage with a 6% fixed-interest rate. The first half of the table shows the initial 12 monthly payments to be applied toward your loan and how the payment will be applied to your interest and principal. The second half of the table demonstrates how the application of those payments changes in the last 12 months of your loan.

Note that this table shows amortization with a fixed-rate loan.

The importance of understanding your amortization schedule

Understanding your amortization schedule can help you budget for your mortgage payments because you’ll see what you owe each month. You’ll also be able to track your progress paying down your loan and better understand how making extra payments can save you money on interest. The faster you whittle down your principal balance, the less interest you’ll pay. Knowing your loan balance can also help you calculate the amount of home equity you have.

Mortgage amortization example

Let’s suppose you take out the same 30-year, fixed-rate loan of $350,000 with an interest rate of 6%. If you put $100 extra toward your principal balance with each monthly mortgage payment, you’ll save $54,696 in interest payments over the life of the loan. You would also pay off your loan 3 years and 5 months earlier than originally planned.

That’s a big impact from just $100 a month. Of course, not everyone can afford to make extra payments each time. But even if you just make an extra payment when you can, it can translate into significant savings in the long run.

Making extra payments earlier in your mortgage has a bigger impact. Interest on your mortgage is front-loaded, meaning most of your payments go toward interest at the beginning (see amortization schedule above). When you pay down the principal earlier, you pay less interest on the smaller principal over the life of the loan.

FAQ

Here are the answers to some frequently asked questions about mortgage amortization.

How does an amortization schedule for a mortgage work?

A mortgage amortization schedule is usually a table with several columns to show a complete breakdown of your monthly mortgage payment. It’ll show how much of each payment is going toward interest and principal along with your remaining balance throughout the life of the loan.

What is negative amortization?

Negative amortization happens when your monthly payment doesn’t cover the interest owed. Instead, that unpaid interest gets added to your loan balance and your overall debt increases. At a certain point, you’ll have to start making higher payments to cover that back interest. If left unchecked, negative amortization could result in you owing more on your home than it’s worth.

How do principal and interest impact mortgage amortization?

Since principal and interest are the two main components of your mortgage payment, portions of each payment will go to each. At the beginning of paying off your mortgage, the majority of your payment will go toward interest, but after several years, most of your payment will go toward your principal balance. This payment shift is shown in an amortization table.

Can I pay off my mortgage early?

Paying extra toward your principal each month can help you pay off your mortgage early and save you thousands in interest over time. However, you’ll want to make sure you won’t face a prepayment penalty if you pay off your mortgage early.

The bottom line: Your amortization schedule can help you save money

You can think of an amortization schedule as the guide for your mortgage that maps out how you’re going to pay off your home loan. It’s important to know how much you’ll owe each month, and you’ll be able to see how much of each payment helps you pay down your mortgage interest and principal.

Understanding how much interest you’re paying may inspire you to make extra principal payments when you can and save money on interest, build home equity or pay off your loan early.

Interested in buying a home? Start your mortgage application with Rocket Mortgage^® today.