Amortization Schedule: What Do Those Numbers Mean?
As you look at the amortization schedule that you have in front of you, it is likely that you’ll need to take some time to figure out what those numbers mean. After all, the schedule is an outstanding way for you to understand what you are agreeing to when you purchase that loan. Not only does it help you understand what you are paying for, it can be a way to find the best mortgage for your needs.
What The Numbers Mean
When you have the amortization schedule in your hand, you may have already signed on the dotted line. But, you can use tools online to help you figure out what it will be long before you even call the mortgage lender. There are some of the numbers you are likely to see on the screen when you use a product like an amortization calculator to help you figure your schedule.
The loan summary provided will tell you what the amounts are. Look here for some important information.
• The monthly payment. One of the first and most important numbers to look at is the monthly principal and interest payment. Simply, can you afford to make this sized payment monthly?
• The total payments. This will tell you how much you will pay completely when you have paid off your mortgage. This takes into account the principal as well as the interest you’ll pay.
• Interest paid is another number you’ll see. Yes, it's likely to cause you to grasp your wallet a little tighter but this is the amount that borrowing money for your mortgage will cost you.
• You will also see a payoff date listed. This is the final payment that you’ll make on your loan.
The Amortization Schedule Itself
The amortization schedule is provided next on this report. Here is what you’ll find there.
• It will list the month and the year of each payment you’ll make.
• It will list the amount of money that will go towards paying down the interest of the loan. Normally, you will pay a much larger portion in interest at the start of your loan and less at the end.
• It will list the amount of money you will pay monthly to the principal or the amount that you actually borrowed. Unlike the interest, the principal starts off low and ends up higher. That means you pay more towards interest than you do towards principal.
• Lastly, it will provide you with the estimated balance of the loan at each monthly level.
Lastly, when it comes to using this amortization schedule to help you to find the right mortgage lender use it to compare rates, terms as well as how much in principal/interest will be paid off monthly. See what happens when you change the numbers just slightly. Compare the rates of several companies and how they affect the payments you’ll be making for up to the next 30 years. The amortization schedule is a tool you have to consider when purchasing a home.
About the Author: Julie-Ann Amos is a freelance writer from London, UK, specialising in finance subjects such as loans, banking., mortgages, amortization schedules etc. She recommends use of an amortization calculator for calculations at http://www.amortization-calc.com.