I get this question all the time from my clients here in the Phoenix area. The mechanism of a mortgage is complex, but it’s vital to understand how it works.
My focus as a mortgage educator is to tell you everything you should know to succeed at buying a home, including the intricacies of how and why mortgages work the way they do.
When you pay your mortgage, you’re paying for two things: Each monthly payment goes toward the principal amount (how much you borrowed to pay for your home), and it also pays for the financing. But how does this work and why is it so?
An amortization table provides the details by presenting the process and details by which you will pay for both your home and the money you borrowed. Each month, this table provides some key figures, including your loan balance, interest charges and principal that’s been paid.
More importantly, an amortization table helps you understand the why behind your loan. It tells you how your loan works, how it’s structured and can also help you predict your future costs.
Here are some of the key features of an amortization table:
Schedule payments. View at a glance your payment history, upcoming due dates, reminders, and show what portions of your payment goes toward interest and balance.
Interest expenses. As you know, each month a portion of the mortgage payment goes toward interest. The amortization table provides information on how much interest you pay and can expect to pay in the future.
Principal payment. See how much of your hard-earned money goes toward the principal balance each month.
Cumulative interest. View how much total interest charges you’ve paid over a specific span of time.
Extra payments. Amortization tables do not account for extra payments.
Fees. Same with fees, amortization will not show additional charges associated with the purchase of your home, such as origination fees.
As you can see, amortization tables provide some valuable insights into the structure of your financing, invaluable information that helps you better understand and plan for your financial future.
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