Mortgage Calculator and Amortization

Amortization Schedule

Enter loan details and click "Calculate Mortgage" to view the schedule.

Understanding Your Mortgage and Amortization Schedule

A mortgage is a loan specifically used to purchase real estate, typically a home. The borrower agrees to repay the lender over a set period, usually 15, 20, or 30 years, with interest. The amount borrowed is called the principal. The interest rate is the cost of borrowing money, expressed as a percentage of the principal. The loan term is the total duration over which the loan will be repaid.

A crucial aspect of understanding your mortgage is the amortization schedule. An amortization schedule is a table that details each payment made over the life of the loan. For a standard fixed-rate mortgage, each payment consists of two parts:

• Principal: The portion of your payment that goes towards reducing the actual amount you borrowed.
• Interest: The portion of your payment that goes to the lender as profit for lending you the money.

In the early years of the loan, a larger portion of your monthly payment goes towards interest. As the loan matures, more of your payment is allocated to paying down the principal. This is known as a 'fully amortizing loan' where, by the end of the loan term, the principal balance will be zero.

How the Mortgage Payment is Calculated

The monthly mortgage payment (P&I – Principal and Interest) is calculated using the following formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

• M = Your total monthly mortgage payment (Principal & Interest)
• P = The principal loan amount (the amount you borrowed)
• i = Your monthly interest rate (Annual interest rate divided by 12)
• n = The total number of payments over the loan's lifetime (Loan term in years multiplied by 12)

Amortization Schedule Breakdown

Each row in the amortization schedule represents one monthly payment and typically includes:

• Payment Number: The sequential number of the payment (1 through n).
• Payment Date: The date the payment is due.
• Beginning Balance: The amount of principal owed before the payment is made.
• Monthly Payment: The fixed amount paid each month (P&I).
• Interest Paid: The portion of the monthly payment that covers interest for that period. This is calculated as Beginning Balance * monthly interest rate (i).
• Principal Paid: The portion of the monthly payment that reduces the principal balance. This is calculated as Monthly Payment – Interest Paid.
• Ending Balance: The remaining principal owed after the payment is applied. This is calculated as Beginning Balance – Principal Paid.

By tracking these figures, you can see exactly how your loan is being paid down over time and how the balance of interest paid versus principal paid shifts.

Key Takeaways

This calculator helps you estimate your monthly mortgage payments and visualize your loan's repayment progress. Understanding these figures is crucial for financial planning, budgeting, and making informed decisions about your homeownership journey.