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Amortization Chart Basics
Amortization chart software includes a basic mortgage calculator. This type of calculator calculates for the monthly payment when it is fed the principal of the loan, the interest rate of the loan and the length of the loan in months. Once the amortization chart software knows the monthly payment of the loan it then calculates the principal left to be paid on the loan for each month for the remainder of the loan.
I t's a Payment Calculator and a Principal Calculator
It does this by internally inputting the monthly payment, which remains the same for the entire term of the loan, the interest rate that also remains the same for the entire remainder of the loan and the number of payments, which decreases by one for each payment over the course of the loan.
With the knowledge the amortization chart software has gained from its calculations it can also calculates the principal part and the interest part of each payment. It does this by looking at the total principal after one particular payment and subtracting that number from the principal owed after the previous payment had been made.
Amortization Charts Separate Principal From Interest
Even after the first payment, the principal owed will be subtracted from the principal owed before the first payment had been made. By doing this, the amortization chart will printout the amount of principal paid after each particular payment. Internally, the amortization chart software knows how much interest has been paid until this same time. It calculates this, by subtracting the amount of principal paid from the total amount of monthly payments made.
At any point in the loan, an amortization chart will show how much principal has been paid and how much interest has paid. Usually, in the earlier stages of a loan, the chart will show very little principal has been paid off of the original amount of the loan. However, it will show a large amount of interest has been paid. The interest is the amount you pay to have borrowed the money for a particular period of time. Therefore, by taking less time to pay your mortgage or loan, you will be paying less money in interest.
Paying a Loan Sooner
To pay a loan ahead of schedule of course, requires you to make additional payments toward the mortgage or loan. However, the amount may not be as much as you might think. In fact, on a 30-year mortgage at 7%, paying an extra $250 a month will have your mortgage paid in full after 19 years and 2 months. This will give you a savings of $114,916.09!