Analyzing a Monthly Mortgage Payment

When you make a mortgage payment, the payment is actually split into two payments:

• Principal: the money borrowed to purchase your home (and sometimes closing costs). 
• Interest: the amount you pay to borrow the principal. 

The amount of your mortgage payment that goes to either the interest or the principal varies over the life of the loan. Typically, early payments go mostly to interest. Usually, the amount that goes to interest decreases over the years, while the amount that goes toward your principal increases. This is how you build equity in your home (along with increases in equity when your house appreciates in value over time)!  But remember, while homeownership is still a good investment for the future, home values can increase and decrease.
An amortization schedule is simply a chart that shows how much of each mortgage payment is allocated to interest and the principal. See a sample amortization schedule below.

Sample Amortization Schedule

Calculation Results Monthly loan payments: $212.47 Total interest paid over the life of the loan: $2,748.23
Year	Loan Balance	Yearly Interest Paid	Yearly Principal Paid	Total Interest
2001	8,377.32	926.96	1,622.68	926.96
2002	6,584.72	757.05	1,792.60	1,684.01
2003	4,604.42	569.34	1,980.31	2,253.35
2004	2,416.75	361.98	2,187.67	2,615.33
2005	0.00	132.90	2,416.75	2,748.23

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Why is it important to understand an amortization schedule?

An amortization schedule helps you understand what you have invested in your home. It’s a powerful incentive tool to help you stay on track.