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What Is Mortgage Amortization? Calculators and Schedules Explained

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Picture this: You found the perfect home. You qualify for the loan. You’ve got a pen in your hand, you’re ready to sign your mortgage loan, and then your lender starts talking about your amortization schedule. If you’re like a lot of us, you probably start to wonder what an amortization schedule is and why you need one. 

First, let’s tackle what it is.  

A mortgage amortization schedule organizes your payments and breaks down the dollar amount of each mortgage payment that will be applied toward the interest and the principal balance of your mortgage loan. 

What Does Mortgage Amortization Mean?

Mortgage amortization outlines how long it will take to pay off your home loan.

Because mortgages are front-loaded to pay more in interest in the beginning, when you first start paying the loan, more of your monthly mortgage payment will go toward interest than principal. As you continue making payments, your principal balance will go down and more of your monthly mortgage payment will be applied to the loan’s principal. 

So, if you had a $1,250 monthly mortgage payment, in the early stages of repaying the loan, $1,100 of the payment could go toward interest and $150 would go toward the principal. 

Your mortgage amortization period is the term or length of the loan. The most common amortization periods are 15- and 30-year periods. 

A longer amortization period means lower monthly payments. But the longer you take to pay off your mortgage loan, the more you’ll pay in interest over the life of the loan. 

How Do You Calculate Amortization?

You can calculate mortgage amortization with a mortgage calculator and an amortization table. Your lender divides your mortgage’s total amount into two parts:

  • Principal: the remaining balance on the loan (aka the money you borrowed)
  • Interest: the cost of financing the home (aka what you paid to borrow the money)

An amortization table details how much of each payment goes to interest and how much goes to principal. An amortization schedule can help you quickly compare the effect of different interest rates on your loan. 

An amortization calculator (or mortgage payoff calculator) allows you to play out different payment scenarios with your mortgage. Your lender or loan servicer may have a calculator you can use to compare costs between a 15-year and 30-year mortgage, measure the impact of extra payments or determine how much extra you’d need to pay off your loan early. 

30-Year Mortgage Amortization Schedule or Speed Up With a Shorter One?

The amount you’ll pay in interest over the life of your mortgage will probably not be an insignificant number. After looking at your amortization schedule, you may find yourself contemplating one of two things: refinancing or making extra mortgage payments. 

Both options can help you pay off your mortgage faster and pay less interest over time. 

Adios, extra spending. Hola, savings on interest! 

Shorten your amortization schedule by refinancing

Consider refinancing to a loan term that’s shorter than your 30-year mortgage term. It’ll reduce what you pay in interest over the life of the loan. Just know that if you shorten the amount of time you take to repay your loan, you’ll need to be able to afford larger monthly payments. Refinancing can also help you secure a lower interest rate, which will help keep the total amount you pay for your home down.  

People don’t always refinance to pay off their mortgage faster. If you’re struggling with your monthly mortgage payment, consider refinancing to a longer loan term. Your monthly payments will shrink, but you’ll have a new amortization schedule, a longer loan term and you’ll pay more interest over time. 

Shorten your amortization schedule by making extra mortgage payments

There are different ways to reduce the length of repayment and the amount you pay in interest. Making extra mortgage payments is one way to pay down your mortgage quickly. Communicate with a lender to ensure that every extra payment goes toward your principal, not your interest.

Before you pull out your checkbook or pull up your Venmo to make extra payments, confirm if your lender: 

  • Charges prepayment fees: If your lender charges a prepayment fee, you’ll have to do a cost-benefit analysis to decide if the fee is worth any future savings. 
  • Has annual limits for extra payments: Some lenders allow a maximum of 20% of the total loan amount to be prepaid every year. 
  • Has limits on extra payment frequency: Some lenders only allow you to make one additional payment per year. 

Now That You Know the Numbers, Know Your Game Plan

Review your existing or estimated mortgage amortization schedule. Can you afford your scheduled payments? Can you make extra mortgage payments to speed up paying off your loan? What can you do to make your monthly payments more affordable or reduce your loan’s interest rate? 

Remember, a large part of your mortgage amortization is your interest rate. Even a 1% reduction in the rate can total up to thousands saved over the life of a mortgage. Consider your options and see what works best for your financial situation.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

The Short Version

  • Mortgage amortization breaks down your monthly payments, showing how much of your payment goes to interest and how much goes to your principal balance
  • Borrowers with longer 15-or 30-year mortgages have smaller monthly payments, but they’re in debt longer and pay more in interest over time
  • You can potentially shorten your mortgage amortization by refinancing or making extra mortgage payments. Your lender has to approve either option
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