How does mortgage amortization work?

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When you have a mortgage, your monthly payments go toward repaying the amount that’s borrowed, with interest, and sometimes homeowners insurance and property taxes.

The portion that’s paid to the principal and interest over the course of the loan term varies according to what’s known as an amortization schedule.

Understanding how your mortgage amortizes is important so that you can make a more informed decision about how to pay off your loan, and the length of time and cost it will take to do so.

What is mortgage amortization?

Mortgage amortization describes the process in which a borrower makes installment payments to repay the balance of the loan over a set period of time. These payments are divided between principal, or the amount borrowed, and interest, or what the lender charges to borrow the funds. Lenders structure loans this way partly to lower their risk if the borrower were to stop making payments.

With a fixed-rate mortgage, the monthly payments remain the same throughout the loan’s term. However, each time you make a payment, the amount of your payment that goes to the principal differs from the amount that gets applied to interest, even though each payment is made in equal installments.

“As your loan matures, you can expect a higher percentage of your payment to go toward the principal, with a lower percentage going toward the interest,” explains Nishank Khanna, chief marketing officer of Clarify Capital in New York City.

The longer the amortization period, the lower your monthly payment. That’s because the longer you spread out your payments, the less it will cost you each month, simply because there’s more time to repay.

The downside to a longer loan term, however, is more money spent on interest. In addition, because the interest payments are frontloaded with a longer mortgage, it takes more time to really make a dent in the principal and build equity in your home — a factor to consider when comparing your loan options.

What is a mortgage amortization schedule?

A mortgage amortization schedule or table is a list all of the payment installments and their respective dates. Mortgage amortization schedules are complex, and most easily done with an amortization calculator. You can use Bankrate’s amortization calculator to find out what your amortization schedule will be based on the loan terms you input.

“A calculator is needed because of the number of variables involved, including the number of compounding periods, interest rate, loan amount and final balance,” says Trevor Calton, professor of real estate finance at Portland State University in Portland, Oregon.

Example mortgage amortization schedule

Let’s assume you took out a 30-year mortgage for $250,000 at a fixed interest rate of 4 percent. At those terms, your monthly mortgage payment (principal and interest) would be $1,193.54, and the total interest over 30 years would be $179.673.77.

Here’s a snippet of what your amortization schedule in this example would look like in the first year of the loan term:

Date Monthly payment Principal Interest Interest total Balance
Nov. 2020 $1,193.54 $360.20 $833.33 $833.33 $249,639.80
Dec. 2020 $1,193.54 $361.41 $832.13 $1,665.47 $249,278.39
Jan. 2021 $1,193.54 $362.61 $830.93 $2,496.39 $248,915.78
Feb. 2021 $1,193.54 $363.82 $829.72 $3,326.11 $248,551.96
March 2021 $1,193.54 $365.03 $828.51 $4,154.62 $248,186.93
April 2021 $1,193.54 $366.25 $827.29 $4,981.91 $247,820.68
May 2021 $1,193.54 $367.47 $826.07 $5,807.98 $247,453.21
June 2021 $1,193.54 $368.69 $824.84 $6,632.82 $247,084.52
July 2021 $1,193.54 $369.92 $823.62 $7,456.44 $246,714.59
Aug. 2021 $1,193.54 $371.16 $822.38 $8,278.82 $246,343.44
Sept. 2021 $1,193.54 $372.39 $821.14 $9,099.96 $245,971.04
Oct. 2021 $1,193.54 $373.63 $819.90 $9,919.87 $245,597.41

Here’s what your amortization schedule would look like in the final year:

Date Monthly payment Principal Interest Interest total Balance
Nov. 2049 $1,193.54 $1,146.82 $46.72 $179,414.94 $12,870.09
Dec. 2049 $1,193.54 $1,150.64 $42.90 $179,457.84 $11,719.45
Jan. 2050 $1,193.54 $1,154.47 $39.06 $179,496.90 $10,564.98
Feb. 2050 $1,193.54 $1,158.32 $35.22 $179,532.12 $9,406.66
March 2050 $1,193.54 $1,162.18 $31.36 $179,563.47 $8,244.48
April 2050 $1,193.54 $1,166.06 $27.48 $179,590.96 $7,078.42
May 2050 $1,193.54 $1,169.94 $23.59 $179,614.55 $5,908.48
June 2050 $1,193.54 $1,173.84 $19.69 $179,634.25 $4,734.63
July 2050 $1,193.54 $1,177.76 $15.78 $179,650.03 $3,556.88
Aug. 2050 $1,193.54 $1,181.68 $11.86 $179,661.88 $2,375.19
Sept. 2050 $1,193.54 $1,185.62 $7.92 $179,669.80 $1,189.57
Oct. 2050 $1,193.54 $1,189.57 $3.97 $179,673.77 $0.00

As shown, the amount of your payment that’s allocated to the principal increases as the mortgage moves toward maturity, while the amount applied to interest decreases.

Note that this is the case for a typical 30-year fixed-rate mortgage. Amortization schedules — and how the payment is distributed to the interest and principal — can vary based on factors like how much you’re borrowing and your down payment, the length of the loan term and other conditions. Using Bankrate’s calculator can help you see what the outcomes will be for different scenarios.

Where to find your amortization schedule 

Don’t expect your mortgage lender to regularly mail or email you your mortgage amortization schedule. You’re likely to find it by logging into your lender’s portal or website and accessing your loan information online, but in some cases, you may have to contact your lender to request it.

“Borrowers typically need to call their bank or lender to request their amortization schedule for an existing mortgage loan,” says David Druey, Florida regional president of Miami-based Centennial Bank.

Bottom line

As a borrower, it’s important to understand how amortization works because your financial needs and situation are likely to change over time.

For example, by scrutinizing your amortization schedule, you can determine if you need to change your repayment strategy if you’re struggling to make payments.

“For those who may be facing challenges paying their mortgage each month, you can, for instance, discuss options with your lender that include refinancing your mortgage or only paying a portion of the debt owed each month,” Druey says.

You might also be considering accelerating your payments or prepaying your mortgage, such as making biweekly payments instead of paying once a month. Knowing how your loan amortizes can help inform your strategy here, too.

“This prepayment activity reduces your balance in the total number of payments, thereby reducing the amount of interest charged with the next payment, which creates a domino effect and accelerates the paying down of your loan sooner,” Calton explains.

It’s also wise to consider how long you plan to remain in your home when deciding on a loan term and amortization schedule.

“Say, for example, you purchased a starter home intending to live in it for only five years before upgrading to a larger house,” Khanna says. “You expect to make a profit when you sell, but you find out that you owe more than the value of the house. That’s because of your chosen amortization schedule and a slight depreciation [in the] home’s value.

“In this scenario, you opted for a 30-year mortgage over a 15-year loan, and most of your payments went toward interest rather than the principal balance,” Khanna says.

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