Although your monthly payment is the same every month, the principal amount will increase each month and the interest amount will decrease each month as you pay off your balance. The calculator’s amortization table (click above to open it) will show you the details.
Most people need a mortgage to buy a home. The median American home costs over $ 300,000, and few people have that much extra cash lying around. Plus, mortgage rates are so low that even people with a lot of savings may prefer to borrow to buy a home in order to maintain the financial security of having well-funded emergency and retirement savings accounts. And, of course, there is the mortgage interest tax deduction.
With our mortgage amortization calculator, you can see your estimated monthly payment and the evolution of the total cost of your mortgage based on your interest rate. Try out different entries for the house price, down payment, interest rate, and loan term to understand the long-term impact of a mortgage before signing the paperwork. This calculator can help you whether you are buying a home or refinancing.
A mortgage amortization calculator will show you the long-term cost of a fixed rate mortgage by tabulating the total interest you will pay over the life of your mortgage. It also details the principal and interest of each monthly payment to show you how your mortgage payments are structured.
Explanation of the results of the mortgage amortization calculator
Monthly payment: See what you’ll pay for principal and interest each month. Keep in mind that there are many other monthly expenses associated with home ownership: home insurance, property taxes, utilities, maintenance and repairs. Depending on your neighborhood and the type of property, you may also pay a homeowner’s association fee. If you put less than 20%, your lender may ask you to pay mortgage insurance premiums.
Total capital paid: The mortgage amount (the amount you borrow) and the total principal paid are the same thing. This amount equals the purchase price of the home minus your down payment plus any closing costs you finance.
Total interest paid: The largest portion of your total cost of borrowing if you hold your loan for the full term (typically 15 or 30 years) is the total interest paid. You can add your mortgage closing costs and mortgage insurance premiums (if applicable) to the total interest paid to understand the true cost of borrowing over the long term.
Estimated final payment date: You don’t really need a calculator to give you your estimated loan repayment date. Just add 15 or 30 years to the date you start paying off your loan. If you make your first payment on March 1, 2021, your 30-year mortgage will be paid off by March 1, 2051. But we’ll save you the math and let the calculator tell you the estimated repayment date.
Total accumulated interest: As you expand the amortization schedule created by the calculator, you will see a column showing the amount of interest you paid for each point on your mortgage. It could be $ 5,000 by March 1, 2022; $ 9,500 by March 1, 2023; etc.
Total remaining balance: Expanding the amortization schedule will also show you how close you are to repaying your loan principal each month. After one year, you could still owe $ 196,000 on a $ 200,000 mortgage; after two years, $ 192,000; after 10 years, $ 155,000; etc.
How to speed up mortgage amortization
Are you horrified at the total cost of interest the calculator tells you? It’s normal. It’s one thing to know that your monthly payment is $ 900, and quite another to see that you will be paying $ 123,000 in interest over the next 30 years. Fortunately, you have several options to make your mortgage amortization faster, to pay off your loan faster, and to save money.
Choose a shorter loan term: If you choose a shorter amortization period for your mortgage, say 15 years instead of 30, you will save significantly on interest over the life of the loan and you will own your home sooner. In addition, interest rates on short-term loans are often lower than those on longer-term loans. A shorter term mortgage can be a good option if you can handle higher monthly payments without difficulty over the life of the loan. Otherwise, there is another option.
Make additional principal payments: To maintain the same term of your mortgage and avoid being subject to higher monthly payments, you can make an additional principal payment per year in the amount of your normal monthly payment. This will save you about five years on a 30-year mortgage. If you have financial hardship for a year, you can skip the additional payment. If you get a big bonus or a one year tax refund, you can double the extra payout. You will have more control, but less responsibility, if you choose this strategy to speed up mortgage amortization.
Understanding mortgage amortization
A mortgage amortization schedule is calculated using the loan amount, the loan term and the interest rate. If you know these three things, you can use Excel’s PMT function to calculate your monthly payment. For a mortgage of $ 150,000 over 30 years with an interest rate of 3.5%, the date to enter in an Excel cell would be = PMT (3.5% / 12,360,150,000). The result will be $ 673.57.
Once you know your monthly payment, you can calculate how much of your monthly payment goes to principal and how much goes to interest using this formula:
Principal payment = Total monthly payment – [Outstanding Loan Balance x (Interest Rate / 12 Months)]
Multiply $ 150,000 by 3.5% / 12 to get $ 437.50. This is your interest payment for your first monthly payment.
Subtract it from your monthly payment to get your principal payment: $ 236.07.
Check your calculations: $ 437.50 + $ 236.07 = $ 673.57, the total monthly payment we calculated above.
Next month, your loan balance will be $ 236.07 lower because that’s the principal portion of your payment. To see how much of next month’s monthly payment goes to principal and interest, repeat the calculation with a principal amount of $ 149,763.93, the result of subtracting $ 236.07 from $ 150,000.
This time your interest payment will be $ 436.81 and your principal payment will be $ 236.76.
Just repeat this process 358 times and you will have an amortization schedule for a 30 year loan yourself.
Now you know why using a mortgage amortization calculator is so much easier. But some people may find it easier to understand mortgage amortization by understanding how the math behind the calculator works.