How An Amortization Table Works
Dave breaks down how the amortization table works on a simple interest mortgage.
QUESTION: Listener wants to know how an amortization schedule works, as well as its benefits. Dave is happy to oblige.
ANSWER: The amortization schedule is the columned page that shows how much of your mortgage payment each month goes to interest and how much goes to principal. Those 2 columns are shows, and the next column over shows your adjusted balance, which goes down each time you make a payment. Then the next month, more of your payment would go toward principal and less on interest because the interest is only charged on the outstanding balance.
It is calculated on simple interest. You can take your annual interest rate and divide it by 12 (one for each month). Then multiply that by the remaining balance, and that is the portion of your payment that goes toward interest the next month. If you pay down on the principal, you slide down the page because you have a lower principal balance now, so the amount charged to interest the next month is smaller.