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FAQ: What does loan amortization mean?

Posted by: raindrop 6 years, 2 months ago

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Amortization is one of the ways a loan can be set up and it involves repaying a loan in equal installments.  

Each time a Borrower makes a mortgage payment, part of the payment goes toward interest and any remainder is used to reduce the principal.  As the balance of the loan is gradually reduced, a progressively larger portion of each payment goes toward reducing principal.

You may have also heard of an amortization schedule.  This term refers to how much of each payment goes toward principal vs. interest.  Even though your mortgage payment may remain the same, how it is allocated is different throughout the term of your loan.  This is important to most borrowers because the interest portion of the mortgage payment is a tax deduction.  Oftentimes people think that the entire mortgage payment is a deduction, but that is not correct.

Here is a sample 30-year fixed rate amortization schedule for a $300,000 loan at 5% fixed rate:  Note that the monthly payment throughout the term of the loan remains fixed at $1799.

Payment Total Interest Principal Principal
Number Payment Component Component Balance
1 $1,799 $1,500 $299 $299,701
2 1,799 1,499 300 299,401
3 1,799 1,497 302 299,100
4 1,799 1,495 303 298,796
5 1,799 1,494 305 298,492
6 1,799 1,492 306 298,186
7 1,799 1,491 308 297,878
8 1,799 1,489 309 297,569
9 1,799 1,488 311 297,258
10 1,799 1,486 312 296,945
11 1,799 1,485 314 296,631
12 1,799 1,483 315 296,316
13 1,799 1,482 317 295,999
14 1,799 1,480 319 295,680
15 1,799 1,478 320 295,360
16 1,799 1,477 322 295,038
17 1,799 1,475 323 294,715
18 1,799 1,474 325 294,390
19 1,799 1,472 327 294,063
20 1,799 1,470 328 293,735
21 1,799 1,469 330 293,405
22 1,799 1,467 332 293,073
23 1,799 1,465 333 292,740
24 1,799 1,464 335 292,405
25 1,799 1,462 337 292,068
26 1,799 1,460 338 291,730
27 1,799 1,459 340 291,390
28 1,799 1,457 342 291,048
29 1,799 1,455 343 290,705
30 1,799 1,454 345 290,360
31 1,799 1,452 347 290,013
32 1,799 1,450 349 289,664
33 1,799 1,448 350 289,314
34 1,799 1,447 352 288,962
35 1,799 1,445 354 288,608
36 1,799 1,443 356 288,252
37 1,799 1,441 357 287,895
38 1,799 1,439 359 287,536
39 1,799 1,438 361 287,175
40 1,799 1,436 363 286,812
41 1,799 1,434 365 286,447
42 1,799 1,432 366 286,081
43 1,799 1,430 368 285,713
44 1,799 1,429 370 285,343
45 1,799 1,427 372 284,971
46 1,799 1,425 374 284,597
47 1,799 1,423 376 284,221
48 1,799 1,421 378 283,844
49 1,799 1,419 379 283,464
50 1,799 1,417 381 283,083
51 1,799 1,415 383 282,700
52 1,799 1,413 385 282,314
53 1,799 1,412 387 281,927
54 1,799 1,410 389 281,538
55 1,799 1,408 391 281,147
56 1,799 1,406 393 280,754
57 1,799 1,404 395 280,360
58 1,799 1,402 397 279,963
59 1,799 1,400 399 279,564
60 1,799 1,398 401 279,163
61 1,799 1,396 403 278,760
62 1,799 1,394 405 278,355
63 1,799 1,392 407 277,949
64 1,799 1,390 409 277,540
65 1,799 1,388 411 277,129
66 1,799 1,386 413 276,716
67 1,799 1,384 415 276,301
68 1,799 1,382 417 275,883
69 1,799 1,379 419 275,464
70 1,799 1,377 421 275,043
71 1,799 1,375 423 274,619
72 1,799 1,373 426 274,194
73 1,799 1,371 428 273,766
74 1,799 1,369 430 273,336
75 1,799 1,367 432 272,904
76 1,799 1,365 434 272,470
77 1,799 1,362 436 272,034
78 1,799 1,360 438 271,595
79 1,799 1,358 441 271,155
80 1,799 1,356 443 270,712
81 1,799 1,354 445 270,267
82 1,799 1,351 447 269,820
83 1,799 1,349 450 269,370
84 1,799 1,347 452 268,918
85 1,799 1,345 454 268,464
86 1,799 1,342 456 268,008
87 1,799 1,340 459 267,549
88 1,799 1,338 461 267,088
89 1,799 1,335 463 266,625
90 1,799 1,333 466 266,160
91 1,799 1,331 468 265,692
92 1,799 1,328 470 265,221
93 1,799 1,326 473 264,749
94 1,799 1,324 475 264,274
95 1,799 1,321 477 263,797
96 1,799 1,319 480 263,317
97 1,799 1,317 482 262,835
98 1,799 1,314 484 262,351
99 1,799 1,312 487 261,864
100 1,799 1,309 489 261,374
101 1,799 1,307 492 260,883
102 1,799 1,304 494 260,388
103 1,799 1,302 497 259,892
104 1,799 1,299 499 259,392
105 1,799 1,297 502 258,891
106 1,799 1,294 504 258,386
107 1,799 1,292 507 257,880
108 1,799 1,289 509 257,371
109 1,799 1,287 512 256,859
110 1,799 1,284 514 256,344
111 1,799 1,282 517 255,827
112 1,799 1,279 520 255,308
113 1,799 1,277 522 254,786
114 1,799 1,274 525 254,261
115 1,799 1,271 527 253,734
116 1,799 1,269 530 253,204
117 1,799 1,266 533 252,671
118 1,799 1,263 535 252,136
119 1,799 1,261 538 251,598
120 1,799 1,258 541 251,057
121 1,799 1,255 543 250,514
122 1,799 1,253 546 249,968
123 1,799 1,250 549 249,419
124 1,799 1,247 552 248,867
125 1,799 1,244 554 248,313
126 1,799 1,242 557 247,756
127 1,799 1,239 560 247,196
128 1,799 1,236 563 246,633
129 1,799 1,233 565 246,068
130 1,799 1,230 568 245,500
131 1,799 1,227 571 244,928
132 1,799 1,225 574 244,354
133 1,799 1,222 577 243,778
134 1,799 1,219 580 243,198
135 1,799 1,216 583 242,615
136 1,799 1,213 586 242,030
137 1,799 1,210 589 241,441
138 1,799 1,207 591 240,850
139 1,799 1,204 594 240,255
140 1,799 1,201 597 239,658
141 1,799 1,198 600 239,057
142 1,799 1,195 603 238,454
143 1,799 1,192 606 237,848
144 1,799 1,189 609 237,238
145 1,799 1,186 612 236,626
146 1,799 1,183 616 236,010
147 1,799 1,180 619 235,392
148 1,799 1,177 622 234,770
149 1,799 1,174 625 234,145
150 1,799 1,171 628 233,517
151 1,799 1,168 631 232,886
152 1,799 1,164 634 232,252
153 1,799 1,161 637 231,615
154 1,799 1,158 641 230,974
155 1,799 1,155 644 230,330
156 1,799 1,152 647 229,683
157 1,799 1,148 650 229,033
158 1,799 1,145 653 228,380
159 1,799 1,142 657 227,723
160 1,799 1,139 660 227,063
161 1,799 1,135 663 226,399
162 1,799 1,132 667 225,733
163 1,799 1,129 670 225,063
164 1,799 1,125 673 224,389
165 1,799 1,122 677 223,713
166 1,799 1,119 680 223,033
167 1,799 1,115 683 222,349
168 1,799 1,112 687 221,662
169 1,799 1,108 690 220,972
170 1,799 1,105 694 220,278
171 1,799 1,101 697 219,581
172 1,799 1,098 701 218,880
173 1,799 1,094 704 218,176
174 1,799 1,091 708 217,468
175 1,799 1,087 711 216,757
176 1,799 1,084 715 216,042
177 1,799 1,080 718 215,323
178 1,799 1,077 722 214,601
179 1,799 1,073 726 213,876
180 1,799 1,069 729 213,147
181 1,799 1,066 733 212,414
182 1,799 1,062 737 211,677
183 1,799 1,058 740 210,937
184 1,799 1,055 744 210,193
185 1,799 1,051 748 209,445
186 1,799 1,047 751 208,694
187 1,799 1,043 755 207,938
188 1,799 1,040 759 207,180
189 1,799 1,036 763 206,417
190 1,799 1,032 767 205,650
191 1,799 1,028 770 204,880
192 1,799 1,024 774 204,106
193 1,799 1,021 778 203,327
194 1,799 1,017 782 202,545
195 1,799 1,013 786 201,760
196 1,799 1,009 790 200,970
197 1,799 1,005 794 200,176
198 1,799 1,001 798 199,378
199 1,799 997 802 198,576
200 1,799 993 806 197,771
201 1,799 989 810 196,961
202 1,799 985 814 196,147
203 1,799 981 818 195,329
204 1,799 977 822 194,507
205 1,799 973 826 193,681
206 1,799 968 830 192,851
207 1,799 964 834 192,016
208 1,799 960 839 191,178
209 1,799 956 843 190,335
210 1,799 952 847 189,488
211 1,799 947 851 188,637
212 1,799 943 855 187,781
213 1,799 939 860 186,921
214 1,799 935 864 186,057
215 1,799 930 868 185,189
216 1,799 926 873 184,316
217 1,799 922 877 183,439
218 1,799 917 881 182,558
219 1,799 913 886 181,672
220 1,799 908 890 180,782
221 1,799 904 895 179,887
222 1,799 899 899 178,988
223 1,799 895 904 178,084
224 1,799 890 908 177,176
225 1,799 886 913 176,263
226 1,799 881 917 175,346
227 1,799 877 922 174,424
228 1,799 872 927 173,497
229 1,799 867 931 172,566
230 1,799 863 936 171,630
231 1,799 858 941 170,690
232 1,799 853 945 169,745
233 1,799 849 950 168,795
234 1,799 844 955 167,840
235 1,799 839 959 166,880
236 1,799 834 964 165,916
237 1,799 830 969 164,947
238 1,799 825 974 163,973
239 1,799 820 979 162,994
240 1,799 815 984 162,011
241 1,799 810 989 161,022
242 1,799 805 994 160,029
243 1,799 800 999 159,030
244 1,799 795 1,004 158,027
245 1,799 790 1,009 157,018
246 1,799 785 1,014 156,005
247 1,799 780 1,019 154,986
248 1,799 775 1,024 153,962
249 1,799 770 1,029 152,933
250 1,799 765 1,034 151,899
251 1,799 759 1,039 150,860
252 1,799 754 1,044 149,816
253 1,799 749 1,050 148,766
254 1,799 744 1,055 147,711
255 1,799 739 1,060 146,651
256 1,799 733 1,065 145,586
257 1,799 728 1,071 144,515
258 1,799 723 1,076 143,439
259 1,799 717 1,081 142,358
260 1,799 712 1,087 141,271
261 1,799 706 1,092 140,179
262 1,799 701 1,098 139,081
263 1,799 695 1,103 137,978
264 1,799 690 1,109 136,869
265 1,799 684 1,114 135,754
266 1,799 679 1,120 134,635
267 1,799 673 1,125 133,509
268 1,799 668 1,131 132,378
269 1,799 662 1,137 131,241
270 1,799 656 1,142 130,099
271 1,799 650 1,148 128,951
272 1,799 645 1,154 127,797
273 1,799 639 1,160 126,637
274 1,799 633 1,165 125,472
275 1,799 627 1,171 124,300
276 1,799 622 1,177 123,123
277 1,799 616 1,183 121,940
278 1,799 610 1,189 120,751
279 1,799 604 1,195 119,556
280 1,799 598 1,201 118,355
281 1,799 592 1,207 117,149
282 1,799 586 1,213 115,936
283 1,799 580 1,219 114,717
284 1,799 574 1,225 113,492
285 1,799 567 1,231 112,260
286 1,799 561 1,237 111,023
287 1,799 555 1,244 109,780
288 1,799 549 1,250 108,530
289 1,799 543 1,256 107,274
290 1,799 536 1,262 106,011
291 1,799 530 1,269 104,743
292 1,799 524 1,275 103,468
293 1,799 517 1,281 102,187
294 1,799 511 1,288 100,899
295 1,799 504 1,294 99,605
296 1,799 498 1,301 98,304
297 1,799 492 1,307 96,997
298 1,799 485 1,314 95,683
299 1,799 478 1,320 94,363
300 1,799 472 1,327 93,036
301 1,799 465 1,333 91,703
302 1,799 459 1,340 90,363
303 1,799 452 1,347 89,016
304 1,799 445 1,354 87,662
305 1,799 438 1,360 86,302
306 1,799 432 1,367 84,935
307 1,799 425 1,374 83,561
308 1,799 418 1,381 82,180
309 1,799 411 1,388 80,792
310 1,799 404 1,395 79,397
311 1,799 397 1,402 77,996
312 1,799 390 1,409 76,587
313 1,799 383 1,416 75,171
314 1,799 376 1,423 73,749
315 1,799 369 1,430 72,319
316 1,799 362 1,437 70,882
317 1,799 354 1,444 69,437
318 1,799 347 1,451 67,986
319 1,799 340 1,459 66,527
320 1,799 333 1,466 65,061
321 1,799 325 1,473 63,588
322 1,799 318 1,481 62,107
323 1,799 311 1,488 60,619
324 1,799 303 1,496 59,124
325 1,799 296 1,503 57,620
326 1,799 288 1,511 56,110
327 1,799 281 1,518 54,592
328 1,799 273 1,526 53,066
329 1,799 265 1,533 51,533
330 1,799 258 1,541 49,992
331 1,799 250 1,549 48,443
332 1,799 242 1,556 46,887
333 1,799 234 1,564 45,322
334 1,799 227 1,572 43,750
335 1,799 219 1,580 42,171
336 1,799 211 1,588 40,583
337 1,799 203 1,596 38,987
338 1,799 195 1,604 37,383
339 1,799 187 1,612 35,772
340 1,799 179 1,620 34,152
341 1,799 171 1,628 32,524
342 1,799 163 1,636 30,888
343 1,799 154 1,644 29,244
344 1,799 146 1,652 27,591
345 1,799 138 1,661 25,930
346 1,799 130 1,669 24,261
347 1,799 121 1,677 22,584
348 1,799 113 1,686 20,898
349 1,799 104 1,694 19,204
350 1,799 96 1,703 17,502
351 1,799 88 1,711 15,790
352 1,799 79 1,720 14,071
353 1,799 70 1,728 12,342
354 1,799 62 1,737 10,606
355 1,799 53 1,746 8,860
356 1,799 44 1,754 7,106
357 1,799 36 1,763 5,342
358 1,799 27 1,772 3,571
359 1,799 18 1,781 1,790
360 1,799 9 1,790 (0)


The table above shows 360 equal monthly payments of $1799.  Notice that the first mortgage payment has $1500 of the mortgage payment going towards interest while only $299 goes towards the principal.  However, the last mortgage payment has $9 going towards interest and $1790 towards principal.

 

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