Bravo! Now you’ve got that job that was eluding you for so long. First of all, congratulations. And secondly, get ready to grow up and learn about such things as taxes, 401K and such thing as compound interest. Perhaps, you are thinking about buying your property soon, or perhaps you just wonder why everybody is cursing their mortgage payment. Whatever your reasons are, it is high time to find out what amortization schedule is.
It is as close to a biography of your loan as you could ever imagine. It tells you exactly how that money is spent on your mortgage. Typically, people pay attention to that monthly amount and just shake their heads in despair. However, the real story is hidden inside that boring Excel table.
Here is the typical amortization schedule:
As you can see, there is the number of payment, date of that payment and the sum you are supposed to pay every month. This sum does not change during the whole term of your loan. But what is happening to it? Your mortgage payment is divided into two elements: interest and principal.
Interest is the money you pay to the bank for using that money. Principal is the actual money you borrowed.
At the beginning of the loan term, bank gets the biggest share of that money as interest. You may pay $2000 per month, but only $300 of it go towards your principal repayment. It is something like paying rent to the landlord, who owns your future.
However, with the passage of time, the picture changes and your share grows. When the loan term ends, you would basically repay yourself.
Why is it important to know that? It is simple: now you know the truth. Imagine that you can make an extra payment every year. Or you could increase the monthly payments by one hundred dollars. It makes quite a difference. You could save a few years of your life and quite a lot of money, because you will have to pay less interest.
Have a look at the total interest payment column at the end of your amortization schedule. The sum is quite terrifying. However, it is a necessary evil that needs to be defeated. Ignorance is not the choice here.
Thus, download that amortization schedule PDF file provided by your lender. Open it in Excel. Do not be scared of that boring grid: it is the map of your money for the whole loan term period.