There are a lot of things to consider when getting
a mortgage, and if you aren’t careful, some of
them can slip through the cracks. You’ll want
to know about your loan’s interest rate, your
loan type, fees associated with your loan, the risks
involved with the loan you chose, and of course your
monthly payments. However, you may also want to know
how much of these monthly payments are going toward
reducing your principal and how much is simply being
used to pay interest.
This is where an online amortization table can come
in handy. These tables allow you to calculate both your
monthly payments and how much of this payment is being
applied to principal and interest, respectively. To
understand how this can be advantageous, you will need
a basic understanding of how amortization works.
First, a loan is amortized, by definition, if it is
for a specific amount to be paid by a specific date.
These loans include car loans and home loans, but not
revolving accounts like credit cards. In an amortized
loan, part of your monthly payment goes to interest,
and, in the beginning, a much smaller portion goes to
principal. However, the amount paid to principal lowers
your total loan balance used to calculate interest for
the next month. So each month, your interest payment
gets lower causing a converse effect whereby the payment
amount applied to your balance increases.
An amortization table takes information, such as your
loan amount, term, and interest rate, as well as the
loan’s starting month, and calculates both your
monthly payment and how much of the payment will be
applied to each category each month. This is useful
to know how much equity you will have built by a certain
time. In the same category, an amortization table can
also help you decide whether you want to make early
payments to lower the principal or not.
Finally, amortization tables can help you compare loans
of different terms, allowing you to determine if the
higher monthly payment for a 15-year mortgage is worth
the increased equity and overall interest savings, or
if a 30-year loan better suits you.