What is an amortization schedule?
An amortization schedule is a visualization of your mortgage payments over time, month-to-month. It breaks down each payment into money towards principal and money towards interest. It also tracks how many payments you’ve made, when you made them, and how many you have left to make. Typically, in the beginning of paying your mortgage the interest is “front-loaded.” This means that for your first few payments, money going towards interest is greater than money going towards principal. This is largely for the lender’s sake, so that they have some degree of insurance if you become unable to repay the loan. In an amortization schedule, you’ll be able to see the breakdown in each payment and track how much of your money is going towards interest and how much is going towards principal. With each payment, a little less is devoted to paying interest and a little more goes towards loan principal. The last payment on the schedule should be made up entirely of payment to principal.
Why should I care?
In short, an amortization schedule is like a mortgage calculator. It organizes important information that you need to know in order to have control over your mortgage and streamlines the calculation of mortgage costs. Additionally, your amortization schedule can vary depending on your particular situation, especially if you decide to pay more interest upfront (in the form of discount points) or if you have an adjustable-rate mortgage (ARM). Amortization schedules are helpful for seeing all of the cost-intricacies of a monthly mortgage payment and allow you to practice effective financial planning habits. Drafting out an amortization schedule can also help you compare different offers. By calculating potential payments fort the span of the next few months or longer, you can get a better picture of how different mortgage offerings may affect your personal finances.
An amortization schedule is a simple way to calculate and organize your monthly mortgage payments, and helps you reduce stress by knowing how to manage your mortgage payments each month. Be sure to always keep a schedule with your mortgage documents and other financial papers. It will keep you mindful of your spending needs and help you stay focused on your mortgage payments.