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Understanding Your Mortgage Amortization Schedule

The mortgage amortization schedule is a table that details each monthly payment that you are required to make on your mortgage. As a borrower, it is very important for you to understand this schedule so that you are well informed about how your mortgage works, what the constituents of your monthly payments are, and what impact each payment has on the outstanding balance of your loan.

The mortgage amortization schedule is usually presented to you in a simple table format at the beginning of a mortgage. Each row of the table consists of information about a single monthly payment. The rows are arranged in a chronological order, so that the first row indicates the first payment, and the last row is the final payment that you will make on the mortgage. To fully comprehend the information provided in each row of the schedule, you need to understand what each column of the table stands for.

Components of Mortgage Amortization Schedule

A typical mortgage amortization schedule consists of 5 major components:

  • Month: This stands for the month in which the payment is to be made. It could simply be a number, counting the months since the repayment on the mortgage began (1,2,3…) or the specific month of a year (March 2010, April 2010, June 2010 …).
  • Payment: This is the total monthly payment that you will have to make to the lender. For a typical fixed rate mortgage, this will remain constant throughout the repayment period.
  • Interest Paid: This is the interest component of the monthly payment. Each payment that you make to the lender is broken into two parts. The first part goes towards interest on the loan and the second part goes towards the principal (the amount that you had borrowed from the lender).
  • Principal Paid: This is the principal component of your monthly payment. You will notice that both the interest and principal components change from month to month. However, the sum of these components in any particular month will always add up to a constant number, which is your total monthly payment. For a typical mortgage, the interest component is higher initially, but goes down as you keep making payments, while the principal component is lower initially and increases progressively through the repayment period.
  • Principal Balance: Also referred to as ‘Remaining Balance’ or ‘Principal Outstanding’, this is the balance of the total loan amount that remains after deducting your total principal paid in all the previous months. This is a very important number because it shows the amount that you owe to the lender at any given point in time.

Understanding these components of the schedule not only allows you to stay up to date with your mortgage, but also helps you in taking important decisions like refinancing your mortgage or changing its terms. The mortgage amortisation schedule is an important document, and you should go back to it every time your financial situation changes so that you can be proactive in making financially prudent choices.