What does Amortization Mean and How can I Make an Amortization Schedule?

Fabulous kitchen with upgrades and graniteKalamazoo MI Real Estate- May 2015:  The word AMORTIZATION describes the process of accounting that will repay a loan over time. Kalamazoo MI residential buyers will most commonly be required to have an amortized mortgage when they purchase a home in the greater Kalamazoo community.

When amortizing a fixed rate mortgage, the payment remains constant for the entire term but the allocation of what goes to principal and interest changes with each payment that is made. Since an amount of each payment retires the principal, the interest due on the next payment is calculated on the unpaid balance after the previous payment was made.amortization schedule.png

This means that as you pay off the mortgage on your Kalamazoo area home, an increasing amount is applied to principal on each payment while the amount owed in interest decreases. If normal payments are made each time, on time, the loan will be completed paid off at the end of the term.

Lets look at aAmortization schedulen example of a Veenstra Team home buyer that purchases a house in Oshtemo and after their down payment, they are left with a mortgage of $200,000 at 3.25% for 30 years that it has a fixed principal and interest payment of $870.41. There is $541.67 due in interest with the first payment and the remainder is applied to principal leaving an unpaid balance of $199,671.25. Since the interest due in the second payment is based on a lower principal, a little more is applied to principal.

 

As a Veenstra Team home buyer, we want you to be able to SAVE as much money s possible when purchasing your Kalamazoo or Portage ware home. We help negotiate the very best price possible for a house AND we want to make sure you understand how you can keep saving money while you own your home.  Here is where understanding the concept of amortization gets interesting.  Since, you notice from the explanation of amortization that your first few years of payments are MOSTLY applied to interest, your debt is not being retired too quickly.

 

Amortization Schedule
Amortization Schedule – No additional monthly principal

 

 

 

 

 

 

 

 

You can retire your debt much more quickly if you add additional “principal only” amounts to your mortgage, or better yet, add an additional “principal only” payment every year.  So,  if you were about to start with your monthly payment of $870.41 payment and were able to add some additional principal to every monthly payment,you would end up shaving lots of interest fees off the cost of your loan over the 30 years of the loan.  A good way to do that is by “budgeting” a higher amount for your monthly payment and making sure that your lender is aware that you want the over payment applied to ‘”principal only”.  If you budget for a payment of $950, for example,  you would retire an additional  $79.59 off your balance each month, or a total of $955.08 a year.

A simple addition of $80 principal/month to your payment would save you $16,839.25 over the life of the loan!  That enough to buy a car!!!

Amortization Schedule -$80 additional monthly principal
Amortization Schedule – $80/month additional monthly principal

 

 

 

 

 

 

 

 

The Veenstra Team is always interested in providing you with the right information to make wise choice so here is a great tool to play with your mortgage balance .  You can see how to save money on your Kalamazoo mortgage.  Create an amortization schedule for a mortgage, click here and enter the information about the loan.  If you have not yet purchased your Kalamazoo home,  contact the Veenstra Team (269-350-5514 or click the form below) so we can provide you with other best in class tools and service so that you meet your housing goals while making wise decisions.