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Amortization Tables

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.