| Amortization. Big word. And an important word in the | | | | period if you only make your minimum monthly |
| loan world. It doesn't matter whether you're getting a | | | | payments. It's enlightening. Or some say, nauseating. |
| loan for a boat, car or home - it's an important concept | | | | The fact of the matter is that 85% (or more) of your |
| to grasp. Of course, I'm going to focus on how | | | | house payment on the first pages of the amortization |
| understanding your loan amortization is important when | | | | schedule go mainly toward interest fees. It's not till the |
| considering home loan financing. It can mean a big | | | | back few pages that your payment really starts |
| difference in the amount of cash you shell out toward | | | | chipping away at principal. |
| your home mortgage over time. | | | | So how can you avoid paying so much more money |
| Amortization is the repayment, systematically, of | | | | back to a lender than you're actually borrowing? By |
| calculated principal and interest to a lender over a | | | | making extra principal payments monthly. You may be |
| designated period of time. Calculating an amortization | | | | surprised to know that by paying additional money |
| schedule is a not an easy task. Thankfully, some really | | | | towards principal monthly, (make sure to write a |
| smart mathematical whizzes came up with tools that | | | | separate check and mark it "principal payment"), you |
| do it for us automatically. You can just punch in the | | | | can chip off years of your loan repayment schedule |
| numbers and print out a schedule. You can find online | | | | and keep money in your pocket. For instance, if you |
| tools to assist you if you're sitting at home and curious | | | | have a 30 year fixed mortgage for $150,000 at 6%, |
| to see your current schedule. Or dig through your | | | | paying an extra $50 per month will save you $26,673 |
| folder of loan closing documents. You should be able | | | | in interest and pay off your loan approximately 4 |
| to dredge up a copy. And if you're considering a home | | | | years early. You can also achieve similar results by |
| loan, your lender should be able to provide you with | | | | making a lump sum principal payment a year (maybe |
| amortization schedules for different financing scenarios. | | | | budget part of a yearly bonus toward this goal). Why |
| What does an amortization schedule look like? Pages | | | | this scenario works is that by reducing the principal |
| and pages of numbers that finally end up reflecting | | | | more quickly over time, there's less of a lump sum |
| your loan balance paid off. It points out to you, | | | | debt to calculate interest against. Make sense? |
| payment by payment, exactly how much of your | | | | So stay in once a month, skip that new pair of shoes |
| monthly loan payment is directed toward principal | | | | or Wii game. Put the money toward your principal. Or |
| reduction, lender collected interested, and escrow | | | | when pre-qualifying for a home, include an extra |
| payments (if you have your lender pay your taxes | | | | principal payment in your budget. Lower your "payment |
| and insurance for you). Also, you can see on the Truth | | | | comfort level" a tad to allow for an extra monthly |
| In Lending statement just exactly how much money | | | | principal payment you intend to make. You'll really see |
| you'll be paying out of pocket over the full amortization | | | | the benefit of doing so in the long run! |