Mortgage amortization and monthly payments
What is amortization and how do interest rates affect your monthly payment?
When a lending institute loans you money it amortizes the loan or, in other words, it calculates the entire amount of the loan and interest over the time of the loan and divides it by the number of months you are paying for the loan. The interest is front-loaded, which means you are really paying mainly interest for the first few years so the bank gets paid first.
Below is an example of an amortization table for the first twelve months of a loan for $115,000 over 30 years at 8% interest rate.
| Loan Amount |
Interest |
Term |
Payment |
| $115,000 |
8% |
30 |
$843 |
| Payment # |
Balance |
Payment |
Principal |
Interest |
| 1. |
$114,923 |
$843 |
$77 |
$766 |
| 2. |
$114,846 |
$843 |
$77 |
$766 |
| 3. |
$114,768 |
$843 |
$78 |
$765 |
| 4. |
$114,690 |
$846 |
$78 |
$765 |
| 5. |
$114,611 |
$846 |
$79 |
$764 |
| 6. |
$114,532 |
$846 |
$79 |
$764 |
| 7. |
$114,452 |
$846 |
$80 |
$763 |
| 8. |
$114,372 |
$846 |
$80 |
$763 |
| 9. |
$114,291 |
$846 |
$81 |
$762 |
| 10. |
$114,210 |
$846 |
$81 |
$762 |
| 11. |
$114,127 |
$846 |
$83 |
$761 |
| 12. |
$114,044 |
$846 |
$83 |
$761 |
From the table above you can see how much interest is front-loaded. However, look on the bright side -- the interest is tax deductible.
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