Mortgage Amortization Calculator
Calculate monthly principal and interest payments and view a detailed annual amortization schedule. Learn how mortgage amortization works.
Inputs
Annual Amortization Schedule
| Year | Starting Balance | Principal Paid | Interest Paid | Ending Balance |
|---|---|---|---|---|
| Enter valid inputs to view schedule | ||||
Results Summary
What is Mortgage Amortization?
Mortgage amortization is the process of paying off a home loan debt over time through a structured schedule of recurring equal payments. The word amortize comes from the Latin roots meaning "to bring to death," reflecting how the debt balance is gradually reduced to zero over the mortgage term.
In a standard fixed-rate mortgage, your monthly principal and interest payment remains exactly the same for the entire length of the loan. However, the internal allocation of that payment shifts every month. In the early years, the vast majority of your payment goes toward paying off interest. In the later years, the allocation flips, and your payment is mostly applied to reducing your principal balance. This mortgage amortization calculator displays this shift in a detailed yearly amortization table.
How Amortization Schedules Work
To understand the mechanics of amortization, let's examine the mathematical calculations performed monthly by mortgage lenders:
1. Calculating Monthly Interest
Every month, the lender calculates interest based on your outstanding principal balance:
\[\text{Interest Payment} = \text{Principal Balance} \times \frac{\text{Annual Interest Rate}}{12}\]2. Calculating Principal Paid
The remaining portion of your monthly payment is applied to the principal balance:
\[\text{Principal Payment} = \text{Total Monthly P&I} - \text{Interest Payment}\]The principal balance is then reduced by the principal payment amount, and this new balance is used for the following month's calculation.
Step-by-Step Amortization Example
Imagine you have a $350,000 mortgage at a 6.5% interest rate with a 30-year term:
- Calculate Monthly Payment: Using the standard formula, your monthly payment is $2,212.24.
- Month 1 Allocation:
- Interest portion: \((350,000 \times 6.5\%) / 12 = \mathbf{\$1,895.83}\).
- Principal portion: \(2,212.24 - 1,895.83 = \mathbf{\$316.41}\).
- New balance: \(350,000 - 316.41 = \mathbf{\$349,683.59}\).
- Month 2 Allocation:
- Interest portion: \((349,683.59 \times 6.5\%) / 12 = \mathbf{\$1,894.12}\).
- Principal portion: \(2,212.24 - 1,894.12 = \mathbf{\$318.12}\).
- New balance: \(349,683.59 - 318.12 = \mathbf{\$349,365.47}\).
Frequently Asked Questions (FAQ)
What is mortgage amortization?
Mortgage amortization is the process of paying off a home loan debt over time through a structured schedule of equal monthly payments that cover both the interest and the principal balance until the loan is paid to zero.
Why is so much interest paid at the start of a mortgage?
Because interest is calculated as a percentage of your remaining principal balance. Since your balance is at its highest in the first few years, the monthly interest charge is also at its peak, leaving less of your payment to cover the principal.
How does interest rate impact amortization?
A higher interest rate increases the proportion of your payment that goes toward interest rather than principal. Consequently, it takes longer to build equity, and your total borrowing cost is much higher.
Does making extra payments change my amortization schedule?
Yes. Making extra principal payments lowers your outstanding balance, which reduces the amount of interest charged in future months. This accelerates your progress through the schedule and pays off the loan years early.
What is the difference between a 15-year and a 30-year amortization schedule?
A 15-year schedule pays off the loan in half the time of a 30-year schedule. Because of the shorter term, monthly payments are higher, but the total interest paid over the life of the loan is drastically lower, and you build equity much faster.
What is negative amortization?
Negative amortization occurs when your monthly payment is not large enough to cover the interest due. The unpaid interest is added to your loan principal, causing your outstanding debt to increase over time instead of decreasing.
How do I read an amortization table?
An amortization table shows a chronological list of payments. For each payment, it lists the starting balance, the portion applied to interest, the portion applied to principal, and the remaining ending balance.
Are property taxes and home insurance included in amortization?
No. Amortization only applies to the repayment of the loan principal and interest. Property taxes, homeowners insurance, and HOA fees are separate expenses that do not amortize.
Can I amortize a mortgage with a balloon payment?
Yes. Balloon mortgages are often amortized over 30 years to keep monthly payments low, but the entire remaining balance becomes due in a single lump-sum 'balloon' payment at the end of a shorter period, such as 5 or 7 years.
How is the final mortgage payment calculated?
The final monthly payment on an amortization schedule is adjusted to match the exact remaining principal balance plus the final month's accrued interest, bringing the loan balance to exactly zero.