If you have a loan, you should also have an amortization schedule. Due to the guidelines for amortization schedules is that it gives you all the key information about your loan, enabling you to make an informed decision before you sign on the dotted line. So what is on these schedules, and what does all of that mean?
Guideline for Amortization Schedules:
Because there are guidelines for amortization schedules, all will contain a certain piece of information. What the figures on those schedules are will vary depending on your loan and your lender. However, what you will see should include:
1. The monthly payment. This is what you pay each month towards the loan itself. This amount is then further broken down. What you will be able to see is just how much of this payment will go to the principal of your loan, and how much of it goes towards the interest. When you first take out your mortgage, most of your monthly payment will go towards the interest payment. However, as the loan payment goes on, your interest payments will gradually, which means more and more of what you pay will go towards paying the loan principal. While different mortgages have different constructions, this is the most common one.
2. The total interest paid. Your schedule should also tell you how much your loan will cost you overall. Interest calculations are incredibly complex, but in simple terms, they are compounded each month. Because of this, interest is actually incredibly costly. It is very common for people to pay about twice what they borrowed in the first place because they pay their interest. Usually, you should see how much interest you have paid every month on your schedule as well.
3. The total payment for the property. Your home will never cost more than the price you agreed upon with the seller. However, you also have to pay for the interest rate, and this is what makes it expensive. The value of your home may be much less than the amount you will pay in interest. This is all visible on the amortization schedule.
When you first buy a home, it is likely that you will feel that you got a really good deal. However, you have to find out exactly what the home is worth to you individually, because you will pay a whole lot more than the agreed purchase price because of the interest. You have to be fully aware of this before you agree to take out the mortgage. Banks are clever, and they will tell you that you will "only" pay a very low interest rate. However, a 2% monthly interest rate over a $100,000 mortgage over a period of 25 years means that you will pay a total of $600,000 (if you don't pay anything towards the principal). That is a staggering amount, and probably far higher than what you thought you would pay for a property. Of course, the more you pay towards your principal, the less that will go towards the interest.