There are a couple of important things to notice. First, notice that the monthly payment is the same every month. This is a key feature of amortizing mortgage loans. As long as the interest rate stays the same, so will the monthly payment.
With fixed-rate loans, this means that you'll have the exact same principal and interest payment throughout the loan term, although other costs you pay with the loan (taxes, insurance, HOA dues) can vary.
Notice how the amount of your loan payment applied to the principal increases every month. This is because as your loan balance declines over time, the lender only charges interest on the money you still owe.
For example, your "month 1" interest charge is based on a principal balance of $300,000, while your "month 2" interest charge is based on a slightly lower balance of $299,527.87. That's why the amount in the interest column declines each month. Less interest and a steady monthly payment means that more is available to pay down the principal in each subsequent month.
Why an amortization schedule can be useful
There are a couple of reasons why an amortization schedule can be very useful to real estate owners and investors with a mortgage:
- Your amortization schedule will tell you how much your principal balance will be at any given point in time. For example, if you plan to sell your home in five years, a mortgage amortization schedule can tell you how much the remaining loan balance will be at that point.
- An amortization schedule can illustrate the effects of making extra mortgage payments. In our example of a $300,000 mortgage at 3.5% interest, paying an additional $100 in principal each month would result in paying off the loan more than three years early -- and saving about $23,900 in interest along the way.
How to find your mortgage's amortization schedule
You can generally find your amortization schedule by logging into your loan servicer's website (the place you make your mortgage payments online). They typically have a link that will allow you to view or download your loan's amortization schedule.
Some (but not all) servicers will allow you to change the inputs and generate a new amortization schedule to contemplate the "what ifs." For example, if you want to see the effect of adding $100 to each monthly payment or paying a $3,000 lump sum every year when you get your tax refund, you might be able to do so right on your lender's servicing portal.
If your servicer doesn't allow you to do this, there are several excellent amortization schedule calculators online that should allow you to do the same thing based on your current principal balance, interest rate, and number of loan payments remaining.
The Millionacres bottom line
Amortization schedules are important tools for real estate owners with a mortgage to understand. It's valuable information to know how your monthly payments break down into principal and interest, how quickly your loan's principal balance will decline over time, and the effects of hypothetical extra payment scenarios.