| Amortization tables can be intimidating when viewed | | | | So, by paying $176.59 with the first month's payment, |
| from a distance, but once they are understood, they | | | | we will now be on time to pay this mortgage in full in |
| can be very useful. A good amortization table can be | | | | 358 months instead of 359. Yes, this is amazing! |
| helpful in saving you money by informing you which | | | | Now, if we go on down the line paying the principal |
| mortgage offer is best for you. They can also help | | | | amount of the next payment due, ahead of time each |
| you to plan a strategy to pay off your mortgage | | | | month. We will be saving the corresponding much |
| ahead of time. Doing so, will free up investment capital | | | | higher interest charges. |
| so you can make money, a lot of money. | | | | It does get a little more expensive. |
| In fact, right now you will learn how to build your | | | | As time goes on, the principal payments get higher and |
| amortization table. Then you'll see how to use this table | | | | the interest gets lower. Still, after two years, the 24th |
| to pay off your mortgage quickly and then parlay | | | | payment, the principal is only $201.61, and after six |
| those savings into big-time money. | | | | years, the 72nd payment the principal is still $269.20. |
| What to enter into an amortization table calculator | | | | If we stopped paying our principal payments ahead at |
| Most amortization tables are simple to construct when | | | | this time, we will have knocked three years off of the |
| you are using a good online amortization table website. | | | | time it would take to pay our mortgage off in full. This |
| All you need to do is input the total amount of the | | | | would happen because we would have paid three |
| mortgage, the interest rate and the length of the | | | | years on time and three years ahead of time. |
| mortgage. Some amortization calculators ask for the | | | | Payoff a 30-year mortgage in 15 years |
| length in years, others ask for it in months, for instance, | | | | What if we want to pay off the mortgage in 15 |
| 360 months instead of 30 years. | | | | years? Here's the secret. Go to the 180th payment. |
| After you click the calculate button you'll see your | | | | Here, you'll see that principal part of the payment is |
| amortization table. You will notice each month's | | | | $515.93. If we add this amount onto each of our |
| payment is broken down into two parts, interest and | | | | payments from the first payment of our mortgage to |
| principal. You'll also notice the interest part of the | | | | the 180th payment of our mortgage, the mortgage |
| payment; at least in the early part of the mortgage, will | | | | would be paid in full in 180 payments, or 15 years. |
| be by far, the higher number. This is because each of | | | | $515.93 may seem like a lot to pay upfront, but even if |
| these early payments consists of much more interest | | | | you were to take the principal part of payment |
| than principal. It is this dynamic we're going to use to | | | | number 55, $243.00, and add it on to each payment, |
| save a lot of money. | | | | you would have your mortgage paid more than 10 |
| An example in big money saving | | | | years sooner. |
| This method will work with any mortgage, but for our | | | | Summing it up, you can use this as an approximate |
| purposes, we'll use these fictitious numbers. We have | | | | formula: On a 30 year mortgage, add to each |
| a mortgage of $225,000. The interest rate is 7.25%, | | | | payment, the amount equal to the principal part of |
| and the length of the mortgage is 30 years. When we | | | | payment number 180 and you will have the mortgage |
| enter these numbers into our amortization table | | | | paid in 15 years. Or, add to each payment, the amount |
| calculator, we find the monthly payment to be | | | | equal to the principal part of payment number 55 and |
| $1,534.90. | | | | you will have the mortgage paid in 20 years. While this |
| When we look at the first payment, we see that out | | | | formula doesn't work perfectly for interest rates over |
| of this $1,534.90, $175.53 goes toward principal and | | | | 10%, for interest rates around 7%, it is fairly accurate. |
| $1,359.30 to interest. When we look at the second | | | | Now, let's see how to turn that savings into wealth. |
| payment we see, $176.59 will go toward principal and | | | | Invest the savings |
| $1,358.31 will go toward interest. | | | | You could, of course become a real estate investor, |
| If we pay the second payment's principal part, $176.59 | | | | but for simplicity sakes, let's just say you invested |
| upfront, or at the same time as the first payment, we | | | | $1,534.90 each month in a managed fund that returns |
| will save the $1,358.31 in interest. Why do we save all | | | | 10% yearly. After 10 years you would have |
| this money? Because after we make our first | | | | $318,127.75. Also, don't forget you would have a house, |
| payment, we will have a balance remaining on the | | | | which would be paid in full. I'd say you're pretty close to |
| mortgage of $224,824.48. The difference between | | | | being rich and it all started with learning how to use |
| how much interest we pay for borrowing this amount | | | | your amortization table. |
| of money for 359 months and 358 months is $1,358.31. | | | | |