Here’s What You Should Know About Mortgage Amortization

Mortgage amortization might sound like a complicated term, but it’s really not. All it refers to is the process of paying down your mortgage over a set amount of time. Here’s everything you need to know about amortization.

What is Amortization?

Mortgage amortization is the process of paying off a home or auto loan over time. You make a set payment monthly for the duration of the loan. If you get a 15-year mortgage, that means your loan is spread out over 15 years.

• Note: A mortgage amortization schedule is designed to pay down the debt slowly at first, then quickly toward the end of the term.

Changing Payments

One of the key aspects of mortgage amortization is that in the beginning, your monthly payments will go mostly toward paying down interest. After several years, that will shift. Eventually, the bulk of your monthly payments will go toward paying down the loan’s principal.

How This Helps

You can use a mortgage amortization calculator to help you get a better grasp on your mortgage.

You can see the following:

• How much interest you’ll be paying over the life of the loan.
• How much of your monthly payments are going toward interest.
• How much is going toward paying down the principal.
• How making extra monthly mortgage payments can reduce your interest and the total amount you pay on the loan.

If you are considering paying your mortgage early, be sure to check for any prepayment penalties or fees. Also, specify to your mortgage servicer that you want your additional payment to be applied to the principal.

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Original article by Chris O'Shea and adapted in partnership with SavvyMoney.