Understanding Mortgage Amortization - Key to Reduce Your Mortgage Interest Cost
Mortgage amortization is the accounting for amortized home loans.
It is a process of decreasing the payment of mortgage interest and increasing the payment of mortgage principal over the period of a loan term.
For example, if you take a mortgage loan of $100,000 with 6% interest rate over 30 years; your monthly mortgage payment will be $599.
55.
Assuming your initial payment date starts on 1st September, your first interest payment is calculated by multiplying 1/12 of the interest rate times the loan principal; which is 1/12 x 0.
06 = 0.
005 x 100,000 = $500.
Therefore, on 1st September, you will be paying $500 interest; the remaining $99.
55 is used to pay the loan principal; hence reduces your loan balance to $99,900.
45.
This process will repeat each month until the end of your mortgage term.
Each month the portion of the payment allocated to interest will gradually decrease while the portion allocated to principal will gradually increase.
For example, on 1st October, you will be paying interest of 0.
005 x $99,900.
45 = $499.
50; and $100.
05 for principal; hence reduces your loan balance to $99,800.
40.
On 1st November, your interest due will be 0.
005 x $99,800.
40 = $499; and $100.
55 for principal; hence reduces your loan balance to $99,699.
85.
Of course, there is mortgage calculator you can use to generate the FULL Amortization table.
You just need to input your mortgage amount, interest rate and loan period.
Hope you now understand why it could be advantageous to make a larger down payment.
When you put down more payment up front, you essentially reduce the loan principal and shorten the loan period; hence reducing the interest cost as well.
Another way to reduce interest cost is of course to negotiate a better interest rate with your lender.
Another way some borrowers use to reduce interest cost is to increase the amount of their payment.
For example, if you paid $699.
55 on 1st September (instead of $599.
55); you would reduce the principal to $99,800.
45; which in turn would reduce the interest cost due on 1st October to $499.
It is a process of decreasing the payment of mortgage interest and increasing the payment of mortgage principal over the period of a loan term.
For example, if you take a mortgage loan of $100,000 with 6% interest rate over 30 years; your monthly mortgage payment will be $599.
55.
Assuming your initial payment date starts on 1st September, your first interest payment is calculated by multiplying 1/12 of the interest rate times the loan principal; which is 1/12 x 0.
06 = 0.
005 x 100,000 = $500.
Therefore, on 1st September, you will be paying $500 interest; the remaining $99.
55 is used to pay the loan principal; hence reduces your loan balance to $99,900.
45.
This process will repeat each month until the end of your mortgage term.
Each month the portion of the payment allocated to interest will gradually decrease while the portion allocated to principal will gradually increase.
For example, on 1st October, you will be paying interest of 0.
005 x $99,900.
45 = $499.
50; and $100.
05 for principal; hence reduces your loan balance to $99,800.
40.
On 1st November, your interest due will be 0.
005 x $99,800.
40 = $499; and $100.
55 for principal; hence reduces your loan balance to $99,699.
85.
Of course, there is mortgage calculator you can use to generate the FULL Amortization table.
You just need to input your mortgage amount, interest rate and loan period.
Hope you now understand why it could be advantageous to make a larger down payment.
When you put down more payment up front, you essentially reduce the loan principal and shorten the loan period; hence reducing the interest cost as well.
Another way to reduce interest cost is of course to negotiate a better interest rate with your lender.
Another way some borrowers use to reduce interest cost is to increase the amount of their payment.
For example, if you paid $699.
55 on 1st September (instead of $599.
55); you would reduce the principal to $99,800.
45; which in turn would reduce the interest cost due on 1st October to $499.