Amortization

Posted on May 4, 2009. Filed under: Amortization Schedule Tutorial | Tags: , , , , , , , |

So what is loan amortization?

If You own a house, probably You are already kinda familiar with the amortization expression, because the majority of homes are paid off with a mortgage loan. But do You really know what is an amortizing loan and what is amortization schedule?

If we stick to the definition of amortization:

It is the process of paying off a loan through a systemic payment plan (e.g.: monthly payments) until it is completely paid off. These loans have regular installments and must be paid within a certain period (usually 10 to 30 years). The structure of each payment is what makes an amortizing loan different from other loans.

Each of these equal payments consists of two portions. The first one is principal and this goes toward the actual cost of the assets (the borrowed amount) and the other portion is interest which is the loan fee. Interest is always calculated on the currently owed money and because of this as time goes by it will always be a smaller and smaller amount.

The first several years You’ll be paying much more toward interest, while at the end of Your payments the bigger portion of Your monthly payments will go toward principal. This is how an amortizing loan works.

This is the process of amortization.

The amortization schedule:

The schedule of the amortizing loan shows every periodic payment amount split into interest and principal until Your loan is totally paid off. The remaining amount of Your loan is also shown after each payment. The best way to find out You loan’s amortization table is to use an online amortization schedule calculator.

This loan amortization calculator allows You to view You mortgage amortization schedule (also called as amortization chart or amortization table). The amortization schedule splits the periodic payments into interest and principal, so You can view how much interest and principal You paying with each (monthly) payment. Just fill in the loan amount, the annual interest rate, the length of Your mortgage and the payment periodicity.

So go ahead and check out Your amortization schedule now!

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