Mortgage Amortization Calculator

Related Calculators

External Resources

Frequently Asked Questions

What is mortgage amortization?

Mortgage amortization is the process of paying off a loan through regular payments over time. Each payment covers both interest and principal. Early payments are mostly interest, while later payments are mostly principal. An amortization schedule shows the breakdown for each payment over the loan term.

How is the monthly mortgage payment calculated?

The monthly payment is calculated using the formula: M = P[r(1+r)^n]/[(1+r)^n-1], where P is the loan principal, r is the monthly interest rate (annual rate/12), and n is the total number of payments (term in years x 12). This formula ensures the loan is fully paid off after n payments.

What is an amortization schedule?

An amortization schedule is a table showing each monthly payment over the life of the loan. It details: payment number, payment amount, interest portion, principal portion, and remaining balance. It helps borrowers understand how their loan is being paid down over time.

How does extra principal payment affect amortization?

Extra principal payments reduce the loan balance faster, saving interest and shortening the loan term. For example, adding $100/month to a $250,000 loan at 6.5% saves $60,000+ in interest and pays off the loan 6 years early. Even small extra payments have a significant impact.

What is the difference between simple and compound interest in mortgages?

Most mortgages use simple interest calculated daily on the outstanding balance. Each month, interest is calculated as (balance x annual rate / 365 x days since last payment). This differs from compound interest where unpaid interest is added to the principal.

How much interest do I pay over the life of a mortgage?

Total interest over a 30-year mortgage is substantial. On a $300,000 loan at 6.5%, total interest is about $383,000 - more than the loan amount. A 15-year mortgage at 5.5% on the same loan would total about $146,000 in interest, saving $237,000.

What happens if I pay extra toward principal?

Extra principal payments reduce the balance faster, which means less interest accrues each month. The payment amount stays the same but more goes to principal. You can make extra payments monthly, annually, or as a lump sum. Even one extra payment per year can save thousands.

How does bi-weekly mortgage payment work?

Bi-weekly payments mean paying half the monthly payment every two weeks (26 half-payments per year = 13 full payments). This results in one extra payment per year, reducing the loan term by 4-5 years and saving significant interest. Some lenders offer bi-weekly programs for a fee.

What is the amortization of a 15-year vs 30-year mortgage?

A 15-year mortgage has higher payments but much faster equity building and lower total interest. For a $300,000 loan at 6.5%: 30-year = $1,896/month, total interest $383,000; 15-year = $2,614/month, total interest $170,000. The 15-year saves $213,000 in interest.

How does interest rate affect amortization?

Higher rates mean more of each payment goes to interest, slowing equity building. At 6.5%, the first year of a $300,000 loan has $19,500 in interest vs $3,700 in principal. At 4%, first-year interest is $12,000 vs $6,700 in principal. Lower rates accelerate equity growth.

What is the first payment breakdown on a typical mortgage?

On a $250,000 loan at 6.5% for 30 years: monthly payment = $1,580. First payment: interest = $1,354 (86%), principal = $226 (14%). After 15 years (180 payments): interest = $875 (55%), principal = $705 (45%). After 25 years (300 payments): interest = $274 (17%), principal = $1,306 (83%).

Can I pay off my mortgage early without penalty?

Most conventional loans have no prepayment penalty, allowing extra payments without fees. However, some loans (especially subprime or certain ARMs) may have prepayment penalties, typically 1-2% of the balance if paid off within the first 2-5 years. Check your promissory note.

What is the rule of 78s in loan amortization?

The Rule of 78s is a method of allocating interest across the loan term, front-loading interest more heavily than simple interest. It is rarely used for mortgages today but may apply to some personal loans. Most mortgages use simple daily interest, which is more favorable to borrowers.

How does loan term length affect total interest?

Shorter terms have higher payments but drastically less total interest. A 30-year term on $300,000 at 6.5% costs $383,000 in interest. A 20-year term (payment $2,237) costs $237,000 interest. A 15-year term (payment $2,614) costs $170,000 interest. The shorter the term, the less interest paid.

What is negative amortization?

Negative amortization occurs when the payment is less than the interest due, causing the loan balance to increase. This can happen with some ARMs or option payment loans. Negative amortization is rare today due to regulations but was common during the housing bubble. It can be dangerous as borrowers lose equity.

How do I read an amortization table?

An amortization table has columns: payment number, payment date, beginning balance, payment amount, interest paid, principal paid, and ending balance. The interest column decreases over time while the principal column increases. The ending balance decreases each month until zero.

What is the effect of skipping a mortgage payment?

Skipping a payment (through forbearance or deferment) does not eliminate the payment. Interest continues to accrue. The missed payment plus interest may need to be repaid through a repayment plan, loan modification, or added to the end of the loan term. It can also affect credit.

How does mortgage recasting work?

Recasting is when you make a large principal payment and the lender recalculates your monthly payment based on the new lower balance, keeping the same interest rate and term. This lowers the payment without refinancing. Lenders typically charge a small fee ($150-$300) for recasting.

What is the amortization of an interest-only mortgage?

Interest-only mortgages allow payments of only interest for an initial period (typically 5-10 years). During this time, no principal is paid, and the balance remains unchanged. After the interest-only period, payments increase significantly as both principal and interest must be paid.

How does mortgage amortization work for FHA loans?

FHA loans amortize the same as conventional loans, but with an additional MIP payment. The MIP is a percentage of the loan amount added to the monthly payment. FHA loans with less than 10% down require MIP for the entire loan term, making the total payment higher.

What is a fully amortizing payment?

A fully amortizing payment is one where the regular payment amount is sufficient to pay off the loan completely by the end of the term. Each payment covers all interest due plus some principal. Standard fixed-rate mortgages are fully amortizing loans.

How do I calculate the principal paid after 5 years?

After 5 years on a $250,000 loan at 6.5% for 30 years: total payments = $94,800 (60 x $1,580). Interest paid = about $77,500. Principal paid = about $17,300. Remaining balance = $232,700. Use our amortization schedule to see the exact breakdown for any time period.

What is the amortization schedule for an ARM loan?

ARM amortization schedules are more complex because the rate changes periodically. The initial schedule is based on the start rate. When the rate adjusts, a new amortization schedule is created. This makes long-term planning more difficult compared to fixed-rate mortgages.

How does paying points affect amortization?

Paying discount points (prepaid interest) lowers your interest rate, which reduces the monthly payment and the interest portion of each payment. One point (1% of loan amount) typically reduces the rate by 0.25%. The amortization schedule reflects the lower rate throughout the loan.

What is the loan balance after 10 years on a 30-year mortgage?

After 10 years on a $250,000 loan at 6.5%: about 33% of the term is complete, but only about 17% of the principal has been paid. The remaining balance would be approximately $208,000. This illustrates how slowly equity builds in the early years of a 30-year mortgage.

Can I change my amortization schedule?

You can accelerate your amortization by making extra principal payments. Some lenders allow recasting to lower payments. Refinancing to a shorter term creates a new amortization schedule. Otherwise, the amortization schedule is fixed for the loan term.

What happens to my amortization when I sell my house?

When you sell, the remaining loan balance must be paid off from the sale proceeds. The payoff amount is the remaining balance plus any prepayment penalties. The sale proceeds after paying the mortgage, closing costs, and commissions become your net proceeds.

How does mortgage amortization differ from other loan amortization?

Mortgage amortization uses simple daily interest, long terms (15-30 years), and typically has no prepayment penalty. Auto loans and personal loans often use precomputed interest or the Rule of 78s, and have shorter terms. Mortgages also have escrow for taxes and insurance.

What is a 40-year mortgage amortization?

A 40-year mortgage has lower monthly payments than a 30-year but much higher total interest. On a $300,000 loan at 6.5%: 40-year payment = $1,745 (vs $1,896 for 30-year), but total interest = $537,600 (vs $383,000). The longer term slows equity building significantly.

How does inflation benefit mortgage borrowers?

Inflation benefits fixed-rate mortgage borrowers because you repay the loan with dollars that are worth less over time. Your payment stays the same while your income typically rises with inflation. This makes the effective cost of the loan decrease over time.

What is the difference between amortization and depreciation?

Amortization refers to spreading loan payments over time (liability). Depreciation refers to spreading the cost of an asset over its useful life (asset). Both allocate costs over time but for different purposes - amortization for loans, depreciation for capital assets.

How do I create an amortization schedule in Excel?

Use the PMT function for the payment: =PMT(rate/12, term*12, -loan). For each period, interest = balance * rate/12, principal = payment - interest, new balance = balance - principal. Copy down for all periods. Our calculator provides the full schedule automatically.