Understanding Your Mortgage Payment and Amortization Schedule 

Your mortgage payment consists of two key parts: Principal and interest. Understanding how your monthly payments are attributed between them can help you plan for early payoff, choose the right time to refinance, and budget more effectively for yourself or your rental business. In this article, we’ll explore why understanding your mortgage payments through an amortization schedule is essential for financial planning—as well as how a tool like Innago’s mortgage payment calculator can help. 

What is a Mortgage Payment? 

When purchasing a property, it’s rare that buyers can afford to pay the entire cost of the home upfront. Instead, you’ll take out a loan — a mortgage — to pay off the purchase over a fixed number of years (usually 15-30) with the property as collateral. Depending on the lender, the type of mortgage, the term of the loan, and the interest rate charged on the loan, you’ll have a payment due each month. 

Types of mortgages include fixed-rate (or traditional), where the interest rate and payments are the same over the life of the loan; adjustable-rate, where the rate may be lower initially and change periodically depending on market interest rates; interest-only, an uncommon mortgage type with a complex repayment plan usually involving a large balloon payment at the end; and reverse mortgages, made for older (62 and up) borrowers who can take out money in the equity of a home as a lump sum, line of credit, or fixed monthly payment that must be paid when a borrower dies, sells the home, or moves away permanently. 

Your monthly mortgage payments can be visualized in a chart called an amortization schedule. This table lists each payment amount, as well as principal, interest, and the total balance, for the lifetime of your loan. This chart allows you to envision the breakdown of your loan over a long-term period to understand what your payments are contributing to. A mortgage calculator with amortization can help calculate these exact metrics for you. 

When to Calculate Your Mortgage Payment and Amortization Schedule 

Whether you’re a home buyer or investor, it’s important to know upfront what your monthly mortgage payment will be so you can estimate how much house you can afford. If you’re in the market for a new property, use a mortgage payment calculator to assess a potential mortgage payment and gauge whether the amount is a number you’re comfortable with. If it’s doable, you can confidently move forward with a deal, and if the payments are too expensive, you can move on to another more affordable property. 

How to Use the Mortgage Payment Calculator 

Understanding your home payments is critical to making good financial decisions and being prepared to own a property. Innago’s mortgage and amortization calculator is simple to use and provides you with several key outputs that put your future mortgage into perspective.  

Let’s discuss how the mortgage payment calculator works, including the necessary inputs as well as how to interpret its outputs. 

Inputs 

There are eight inputs needed to use the mortgage payment calculator: 

1. Purchase price 
2. Term 
3. Property taxes 
4. Property insurance 
5. Down payment  
6. Interest rate 
7. Private mortgage insurance (PMI) 
8. Start date 

The purchase price is simply the price the seller has listed the home for. You can input the asking price or, if you think you’ll be able to negotiate with the seller, a lower price you think is achievable.  

The term refers to the term of the loan. The most common loan terms are 30 or sometimes 15 years, but they can range from 10 to 20 years as well. Though 10-year mortgages mean faster payoff, 30-year loans are standard because homebuyers can more easily afford smaller payments. 

Property tax is a tax by a local government on a home based on its value. This amount will vary based on the area and the value of each home. For example, if the potential property has a larger plot of land than the home next door, the property tax will likely be higher than that of a neighbor with less land. 

Property insurance is insurance that covers damage to your home from situations like weather-related events or theft of personal belongings. Property insurance is different for everyone depending on the coverage level you need based on your geographic area and risk factors. Analyze what type of insurance you’ll need based on your area and the kind of coverage you’re looking for. 

Your down payment is an upfront payment on a house that is deducted from the cost of the purchase price, lowering the mortgage. The standard down payment on a property is 20%, but some buyers cannot afford a down payment that large. Your down payment depends on your lender and specific loan terms. 

Your interest rate will depend on the average market rate, your lender, your credit history, and your financial circumstances, along with other factors. If you’re using a fixed-rate loan, the rate offered to you will stay the same, but if you choose an adjustable-rate loan, this rate can fluctuate with market changes. 

PMI, private mortgage insurance, is often required if you put down less than 20% on a property. This insurance protects the lender in the event that you are unable to continue making payments on your mortgage. Once you reach 20% equity in the home, you’ll usually be able to cancel this insurance. 

The start date is, as it sounds, the date when you’ll own and begin paying your mortgage. 

Outputs 

After keying in your inputs, you’ll be given six outputs: 

• Monthly payment 
• Loan amount 
• Payment over 360 payments (30 years) 
• Total interest 
• Payoff date 
• Monthly and yearly amortization 

The monthly payment is the estimate of the amount you’ll pay every month on your mortgage. This output gives you a zoomed-in look at the everyday reality of paying off a mortgage, letting you visualize the monthly effect of a mortgage on your bank account. 

The loan amount is the total loan you’ll be working to pay off over the life of your loan. This output offers a big-picture look at your mortgage, showing the overall amount your monthly payments will go toward. 

Your payment over 360 payments tells you how much you will have paid toward your mortgage after 360 payments, or 30 years. This number differs from your loan amount because it includes both the original payment as well as the overall interest you will have paid over that time. 

Total interest refers to the amount overall that you will pay in interest depending on your interest rate and the term of your loan. This number is added on top of your principal to give you your payment over 360 payments. 

The payoff date is the month and year you will completely pay off your mortgage. This number is calculated by adding the term of your loan to your start date. This date is the goal you’ll work towards to be entirely free of mortgage payments on your property (note that your payoff date can move up if you make extra payments). 

The monthly and yearly amortization schedule takes all these outputs and charts them for a visual look at how much you’ll have left on your mortgage at any given time. You can use this tool to see a breakdown of your principal and interest payments, as well as property tax, insurance, and PMI. You can also see your total balance at any point along the life of your loan. 

How to Interpret Your Estimated Mortgage Payment 

A mortgage payment interpretation depends on your finances and the comfort level you have with a proposed interest rate and loan term. You may input information about a home and find that its mortgage payments would be hundreds of dollars more than you can afford; alternatively, you may find that it’s less expensive than you might have originally guessed.  

These numbers will allow you to assess if a home is in a good price range for you or if you need to adjust your search for a new property. They’ll also help you feel prepared for what your mortgage will look like every step of the way. 

Remember, however, that your debt service is not the only expense you’ll incur as a homeowner. Be sure to factor in the cost of HOA fees (if you’re in a HOA), upfront costs like closing costs, and possible changes to your annual percentage rate if you don’t have a fixed rate mortgage. 

Conclusion 

With this mortgage calculator amortization tool, you’ll be better equipped to analyze your potential mortgage payment on a property and understand how to read an amortization schedule. This quick estimate will allow you to quickly decide whether a property is a good deal for you, whether you’re investing in your own home or your rental business.