How to Understand a Mortgage Amortization Schedule

Many people remember seeing a mortgage amortization schedule only twice during the lifetime of a mortgage, during application and payoff. The mortgage amortization schedule is an underused tool that helps borrowers understand how each payment is broken down in chronological order over the lifetime of a loan. The schedule or table displays amounts paid in interest, principal and to-date figures. It may be calculated by hand or by use of an online mortgage calculator.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Mortgage statement
• Calculator or online mortgage calculator

1. Obtain a recent mortgage statement which may already contain the amortization schedule. If not, calculate the schedule using the data on the statement.
2. Read the first column of the table. All columns should be labeled. They display the date and payment amount in ascending order.
3. Look over the following column which is likely labeled interest. This shows the dollar amount of interest paid per payment cycle.
4. Follow to the next column which is labeled principal. Principal is the original amount of the mortgage. This column shows the dollar amount of principal paid per payment cycle.
5. Shift attention to the next column to find interest to-date. As stated, this column represent the dollar amount of interest per payment cycle paid to-date.
6. End with the final column which states the principal balance. Principal balance represents the original amount of the mortgage that's still owed.

Tips & Warnings

• At first, the majority of each payment goes towards interest. As the loan matures, that changes and gradually more of each payment goes towards principal.
• The amortization table may or may not also give a column for the length between payment period, total amount paid each period and interest rate (which may change over the length of the loan if it's not a fixed rate mortgage).