If you’re planning on buying a home, or you’re thinking about refinancing your current home, you’re probably quite familiar with the term “amortization.” Amortization is simply the process of paying off your mortgage. Rather than paying off your debt at one time, amortization involves monthly payments or installments on the principle and the earned interest.
When you apply for a home mortgage loan, you set up an amortization schedule. This schedule takes into account your down payment, interest rates, and the price you paid for your home. If you’re thinking about refinancing your home or borrowing against the equity in your home, it’s a good idea to review your amortization schedule. Reviewing this information helps you determine if you’re making acceptable progress in paying off the principle on your mortgage loan.
One of the best ways to calculate your amortization rate is to use an online amortization calculator. In order to use an online calculator, you need to have some basic information at your fingertips. Most calculators require you to enter the first payment year, mortgage amount, interest rate, and the length of the mortgage.
It’s important to remember that amortization calculators do not account for taxes and insurance. Results are based on traditional mortgage loans and do not account for creative financing strategies and other unconventional terms. It’s never a good idea to base any major financial decisions on the information provided by amortization calculators alone. If you’re thinking of paying your loan off early or making other changes, it’s important to get a second opinion from a licensed financial advisor.