How to Compare Mortgage Amortization
Even though most home buyers scurry from bank to bank looking for the lowest interest rate for their mortgage, the amortization of a loan is just as important as the interest rate. While the two are related, amortization is a completely different concept that deals with how fast you pay back your principal. A mortgage that amortizes slowly requires you to pay more interest because you will borrow the principal for a longer period of time; a faster-amortizing mortgage can save you thousands on interest.
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Instructions
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1
Get the exact details of your mortgage offer from each bank or loan company that you have considered taking a mortgage from. These details should include your locked-in interest rate, the total principal that you will borrow and your monthly payment.
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2
Access the amortization calculator through the link in the Resource section. This calculator will give you information on the total amount of interest you will pay over the course of the loan, and the total principal that you pay month by month.
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3
Enter the values for your principal and interest rate, which are the two most important things about your mortgage. Make sure that you enter your interest rate down to three decimal places and do not round it, as this could cause serious errors. If your interest rate is locked in at 4.875%, enter that number into the calculator instead of 4.9%.
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Leave the default values of 12 payments per year and 360 payments total in the calculator if you have a 30-year mortgage and plan to make one monthly payment per year. If you have a 15-year mortgage or plan to pay your mortgage on a biweekly plan, you will have to adjust the numbers accordingly.
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Input your monthly payment into the calculator.
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Click the check box that says “Show Amortization table” and then press the button that says “Calculate.”
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Scroll down to see your full amortization table, which breaks down each monthly payment into principal and interest, and also tells you the total principal and the total interest that you will have paid with each payment. Write down these values for a few key points (one year, five years, 10 years and 15 years, for example) so that you can compare them between mortgages.
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Repeat Steps 2 through 7 for each mortgage quote that you received from a lender.
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Look at the important values that you wrote down. The cumulative principal is the most important value here, as it tells you how quickly your loan amortizes. A loan in which you have paid off $5,000 of the principal in the first five years is probably better than a loan where you only pay off $3,000 in the first five years. You can look at other time points and the total interest paid to further compare your mortgage quotes and amortization rates before you commit to one lender.
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References
Resources
- Photo Credit mortgage image by hans slegers from Fotolia.com
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Comments
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Have you ever heard about loan analysis templates? These templates work through the PMT option, which calculates a loan payment with fixed interests and constant payments. Altogether, these templates can provide you with the set of numbers you need in order to compare rates and terms, review monthly principles and payments of interests, and finally do the "what-if-I-do-this" analysis just like the suits up in finance. It may also These amortization templates calculate payments and interests needed to pay off a loan, and give you a detailed summary of your loan along with all monthly principles and interests, including extra payments. This little option is as easy to use as no credit loan. It may save you a lot of time and spoiled nerves. I strongly recommend you to try it.
