Adjustable Rate Amortization
Finding An Adjustable Rate Amortization Calculator Amortization calculators are important for those of us who want to see how much principal and interest we are paying off each month as we make our payments. It is also important to see how much more rapidly we will pay off our mortgage if we add extra money to our payments.
If however, we have an adjustable-rate mortgage, finding an amortization calculator won't be as easy. Let's see how amortization works and then see how we can apply it to adjustable-rate mortgages.
Amortization Shows Your Mortgage Payoff in Advance
The great thing about amortization schedules is they show the layout of your entire mortgage in advance. If your mortgage is for 360 months (30 years), you can look at an amortization schedule and see how much principal is applied to each payment and how much interest is paid with that corresponding payment.
By looking at an amortization table you can see how to shorten the term of your mortgage by paying extra principal payments that are equal to the principal scheduled to be paid on any given payment. For instance, if your amortization schedule for payment 5 shows you will be paying $20 principal, you can make an entire payment by paying an extra $20 this month. This is true even if the interest paid on that payment is $2,000 and your total payment due is $2,020.
Adjustable Rates Equals Uncertainty
The problem is an adjustable-rate mortgage doesn't guarantee how much interest you will be paying on your mortgage at any given time. If you have a two-year adjustable mortgage, every two years your interest rate will change. So, you have to wait until you know what your interest rate will be before you can see how the mortgage will amortize.
Technically, there is such a thing as an adjustable-rate mortgage amortization table calculator. However, you couldn't use one accurately to see how much principle will be due on a payment 30 years in advance because you have no idea what the mortgage interest rate will be at that time.
A Right Time and a Wrong Time for Adjustable Rates
It is my feeling having no appropriate amortization calculator for an adjustable rate mortgage is not this type of mortgage's biggest drawback. At this time in history, having any type of loan where the borrower is allowing the lender to adjust his rates on-the-fly is also a drawback.
There is a right time for adjustable-rate mortgages. When interest rates were sky high and politicians made in issue of doing whatever they could to lower interest rates, it was a good time for adjustable-rate mortgages. If you had taken an adjustable-rate mortgage, when mortgage rates were 14%, you would have saved a lot of money over those past 27 to 28 years.
This is because interest rates have dropped down, to under 5% since then. Over these last 20 years, interest rates have generally been lower than 8% and usually lower than 7%. If you had been locked in to a 14% mortgage over this time, you would have been paying through the nose!
This is the Wrong Time
Now, with current interest rates between 3.5% and 5% and with rates having consistently been in this range for over a year now, and with politicians now wanting things to change; I would say don't get an adjustable-rate mortgage. If these politicians who are looking for things to change are successful, you would have to say good-bye to low mortgage interest rates.
So, my advice is stop looking for an adjustable-rate amortization calculator and start looking for a good fixed-rate mortgage by Ed Lathrop.