Definition of Amortization Schedule
An amortization schedule is a table of periodic payments made to a mortgage, showing the amount paid, the amount applied to interest, the amount applied to principal and the remaining balance after the payment is made. Amortization schedules are usually made as a hypothetical for the purchaser, to show the outcome if each payment is made in a timely manner and for the correct amount.
Example
Mr. McGillicuddy has a $200,000 mortgage at 5% interest and a 30 year amortization period, with a payment of $1067.38. The first year of the amortization schedule will look like this:
Payment no. | Payment | Principal | Interest | Ending principal balance |
1 | $1067.38 | $242.60 | $824.78 | $199,757.40 |
2 | $1067.38 | $243.60 | $823.78 | $199,513.80 |
3 | $1067.38 | $244.60 | $822.78 | $199,269.20 |
4 | $1067.38 | $245.61 | $821.77 | $199,023.59 |
5 | $1067.38 | $246.62 | $820.76 | $198,776.97 |
6 | $1067.38 | $247.64 | $819.74 | $198,529.33 |
7 | $1067.38 | $248.66 | $818.72 | $198,280.67 |
8 | $1067.38 | $249.69 | $817.69 | $198,030.98 |
9 | $1067.38 | $250.72 | $816.66 | $197,780.26 |
10 | $1067.38 | $251.75 | $815.63 | $197,528.51 |
11 | $1067.38 | $252.79 | $814.59 | $197,275.72 |
12 | $1067.38 | $253.83 | $813.55 | $197,021.89 |
If a payment is late, an extra payment is made, or a lesser payment amount is paid, the amortization schedule will need to be recalculated. This is because the interest charge on the mortgage is calculated based upon the unpaid balance. Recalculating is not a difficult task, since a mortgage calculator will recalculate the amortization schedule in seconds, and can prepare a new table based on the recalculation.
First Foundation Tips
An amortization schedule can be useful for a number of purposes. It will show the payoff balance at a certain times during the payoff period. A quick look at the schedule will show the approximate remaining balance after 5 years, after 10 years, after 20 years and so on. Using a mortgage calculator, the schedule can be reconfigured to show how payments are applied if, for instance, you wish to make one additional payment per year, or make a lump sum payment during the amortization period.
Take advantage of our online mortgage calculators to determine the benefits of the various payment options available to you and of course, you are always welcome to contact one of our Mortgage Brokers with any questions you may have.
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