Shopping for a mortgage can be confusing, especially for first time home buyers. There are so many unfamiliar terms and even the basic concepts of a mortgage that aren’t commonly used in your life before buying a home.
If you want to be sure you are getting the right mortgage, you need to understand all the terms and conditions of the contract. If you are unfamiliar with mortgages, you should start by learning how your mortgage payment will be calculated. Amortizations spreadsheets are a great tool for this purpose.
You may be wondering, “How can amortization spreadsheets help you understand your mortgage options?
Amortization spreadsheets will allow you to see the portion of each payment that goes toward paying down the principal (amount of original loan still owed) and the portion that goes towards paying interest on the principal.
At the beginning of the term of the mortgage most of the payment goes towards paying interest on the principal while only a small percentage goes towards reducing the principal (amount owed). Towards the end of the term of the mortgage most of the scheduled payment is applied to the principal owed with only a small percentage goes towards interest.
Even though the amount of principal and interest changes for each scheduled payment, the total payment remains the same for the whole term of the loan. This process of paying down the principal little by little is called amortization.
Amortization spreadsheets are documents that show the calculation of principal and interest of each scheduled payment. You can study these spreadsheets to get a better understanding of how a mortgage works, and how changes in interest rate, loan term and principal affect the payment schedule.
You can download a free amortization spreadsheet here. It requires Microsoft Excel or OpenOffice (available free at openoffice.org) to run it.
Allen Davis
RealEstateSearchDirect.com
My realtor spoke to me about using an authorization spreadsheet since all of the mortgage terms can be totally confusing since I have never bought a home before, but it helps to have your payment in a clear pictures so you can understand what is going on.