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Mortgage amortization is an intimidating-sounding concept (no surprise here – the word “amortization” literally means “to kill off”) that has to do with paying off your home loan. While it can be kind of tricky to understand exactly what amortization is and what it means for your monthly mortgage payments, it’s worth figuring out. Knowing what your amortization schedule looks like can help you decide if it would be more cost-efficient for you to be making additional payments on your mortgage.

What Is Amortization?

Mortgage amortization refers to a loan’s schedule of repayment. It’s how much you’re paying each month and the factors that make up that payment.

Without factoring in an escrow account, a basic mortgage payment consists of two components: principal and interest. Let’s take a closer look at each of these.

Principal

This is the loan balance. It’s the amount of money you initially borrowed that you are paying back. As more of your principal is paid off, you’ll pay less in interest. It takes a while before your mortgage payments start to really make a dent in paying off your principal; when you first start making payments, the majority of your monthly payment will be put toward paying interest.

Interest

This is how lenders make their money. All loans come with an interest rate, which is taken as a percentage of the principal. A mortgage calculator can tell you how much interest you’ll pay over the life of a loan. For example, if you take out a 30-year loan for $100,000 with a 4.5% interest rate (4.784% APR), assuming you don’t make any extra payments, you’ll end up paying a total of $82,406.87 in interest (in addition to paying back the original $100,000).

How Do My Loan Payments Change Over Time?

With a traditional mortgage, your payment will remain the same total amount every month; however, the makeup of that payment will change throughout the repayment of the loan. When you first start paying off the loan, most of your payment will go toward paying interest. However, as you slowly start to pay off your principal, the amount of interest you’ll need to pay will decrease, so a larger share of your payment will be applied toward principal. This increases the speed with which you build equity.

Put simply: The more principal you owe, the more you’ll owe in interest. If you’re paying off a loan with a set monthly payment and a fixed interest rate, the amount of money you pay in interest will lower each month as your principal is lowered.

What About Overpaying?

While it might be stressful enough to worry about making your mortgage payment without trying to carve out extra money in your budget to make additional payments, if you have the means, overpaying on your mortgage can have its benefits. If you’re able to do so, paying more now can potentially save you tens of thousands of dollars down the road.

Let’s go back to our $100,000, 30-year fixed loan. Your monthly payment on that loan, not including taxes and insurance, would be $506.69. However, if you were to make an additional monthly payment of $50, you’ll save yourself almost $16,000 in interest and shave a few years off the length of the loan as well.

This can make sense if your main goal is to build equity, or if you want to save money on interest. Because all overpayment goes directly to the principal, you’ll pay less interest over the course of repayment, and you’ll pay off your mortgage sooner than if you had stuck with the given amortization schedule.

However, not everybody has the extra money to do this, and those who do might find their money better put toward other things, such as investing.

You’ll also want to watch out for prepayment penalties. Typically, you’ll only be able to pay off 20% of the loan balance in a given year or you may face prepayment penalty fees. This restriction can include selling the home or refinancing the loan, so be sure to consult the fine print of your mortgage before making any big moves in regard to your loan.

Want to figure out the amortization of your mortgage? Check out this easy-to-use mortgage amortization calculator to get a breakdown of your monthly payments and find out how much you could be saving by making additional payments. Need a mortgage or looking to refinance? Get started online with Rocket Mortgage® by Quicken Loans.

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This Post Has 18 Comments

  1. I want to know why I cannot keep my mortgage payments from increasing every year by adding to my escrow account for know increases in tax and insurance costs. For two years straight, I have tried to pay extra in my payments to cover the ‘shortfall’ in escrow balance and you still increase my loan payment amount. Make this Rocket Mortgage Simple and fix that.

    1. Hi Bill:

      I can definitely get this to our Client Relations team to look into your situation. I do want to make sure we cover what’s possibly happening with your escrow account. When you have a shortage, it’s because your taxes and insurance have gone up. Because your escrow is analyzed once per year and it’s not necessarily timed with your county tax assessments which are different everywhere, if your taxes go up, there may be a shortage. This could also happen if you change homeowners insurance policies. When you pay off the shortfall, your payment is still going to be higher than it was to account for the increased tax rate going forward. Someone will be reaching out.

  2. We make our mortgage payment online and would like to know how to pay extra on the principal since we don’t have a payment book

    1. Hi Harold:

      If you make your payment online through your Rocket Account, (if it’s been a while since you logged in, these would be the same as your old MyQL credentials) you have the option under the payment Center to add extra money to the principal on a one-time basis by filling out the additional principal box in the payment screen. You can also do the same thing on a recurring basis by setting up auto pay. If you paid through your bank in the past, I recommend setting it up through the Rocket Account in the future, because it will give you more fine-grained control on how your payment is applied. I hope this helps!

    1. Hi Ivan:

      I can tell you that our Rocket Account site includes both a personalized amortization schedule and calculator if you’re a Quicken Loans client. If you haven’t logged in in a while, the credentials are the same as the ones you used for MyQL. Hope this helps! Have a great day!

  3. I would like an amortization schedule from this point on… don’t know if possible, I have been applying extra to principal and also paying biweekly so that it will accelerate the payoff.
    I guess what I need is to know if I continue at this rate how much time do I have left on my mortgage???
    Thanks in advance, Maria

  4. Would like to begin paying an additional $50 a month effective January 2019.

    How much time can I shave off the 15 year loan?

  5. I am paying ahead on my payments. My next house payment is due 3/1/19. Would it be better if I had paid this amount into princeable? I already pay about $40 a month in extra princeable, but I wanted to get a little ahead in case something happened. Should I now change and pay that money into the bal.?

    1. Hi Floyd:

      If you want to pay off the loan sooner, it makes sense to put the money into the principal balance. You also save money on interest that way. However, I also understand your strategy about wanting to get ahead while you have the income in case there are changes in the future. It’s really up to you in figuring out your goals.

    1. Hi Maria:

      You can do this yourself. On your payment coupon, when you send in the extra money, there is a checkbox where you can specify what your extra payment should go toward. There will be options for making a payment ahead of time and contributing to your escrow account, but the one you want for paying off your loan earlier is principal. Check that box either on the payment coupon or online in your Rocket Mortgage Servicing account and you’ll be able to work toward paying things off faster. Hope this helps!

    1. Hi Paula:

      I’m going to remove this from public view while we take your phone number off because this is a public forum, but I will get this to our client relations team to see if we can help answer your questions. Thanks!

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