The minimum monthly payment is set to “amortize” (literally, pay back) the loan in the exact number of years you selected when your loan was originated. So if you chose a 30-year, fixed-rate loan, your monthly payment was calculated to pay off the loan in exactly 360 installments.
You may have been given an “amortization chart” when your loan began showing the monthly split of principal and interest as well as the declining principal balance.
It’s that declining balance that owners find it fun to review on an annual basis. It literally shows the loan balance dropping month after month. Under most simple interest loans, the early payments are largely interest. In the latter years, most of your payment typically goes to principal payoff.
If you don’t already have one, it’s easy to create your amortization schedule.
Visit bankrate.com and click on “calculators” then “mortgages.” One of their many options allows you to create a complete loan repayment schedule online. If you prefer a free program you can load on your computer, visit money99.com and click on “resources,” then “documents,” and finally “downloads.” At the end of the list, select Mortgage Wizard. I have used this program successfully for years.
Don’t be surprised if your own calculations differ by a few pennies from your “statement of interest paid” from your lender. There are several approaches to rounding used by lenders and they can affect your balance. If you are off by more than few dollars, call your lender and ask for an explanation.
For more information on mortgage loan amortization, visit my Web site: money99.com.
John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920am) every Saturday at noon. For more real estate information or to make a comment, visit www.money99.com.