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When you apply for a home loan, you inevitably will come across several industry-related words that are unfamiliar to you. Many lenders have an online glossary that can help you to become a more educated mortgage consumer, and you can also use the Internet as great resource from time to time. One word that is commonly searched for is amortization, and many home loan applicants wonder what this is and how it relates to their financing request. By learning more about amortization, you may be able to use an amortization calculator more effectively.

What Is an Amortization Schedule?

mortgageWhen you have a fully amortizing loan, your outstanding principal balance will be repaid in full by the end of the loan term. A common example of a fully amortizing loan is a home mortgage that does not have a balloon payment on it. With each payment you make on a fully amortizing loan, an increasing amount of principal reduction is applied, and interest charges decrease. An amortization schedule is a very detailed report that shows the amount of each individual payment as well as a breakdown for the principal and interest portions of each payment. Many amortization schedules also show the outstanding principal balance and the total interest charged for each payment that is made.

How to Use an Amortization Schedule for Strategic Planning

An amortization schedule can be fascinating to look at for a number of reasons. For example, many people do not plan to live in their home until the mortgage is paid off. If you only plan to live in the home for 10 years, as an example, you may wonder what your outstanding principal balance will be after 10 years has passed. By reviewing the schedule, you can more easily determine when you will be able to afford to sell the home or if you should plan to lease it for a period of time before selling it. This is just one of many ways that an amortization schedule can be used for strategic planning purposes.

Where to Find a Quality Amortization Schedule Calculator

mortgageMany lenders provider their clients with an amortization schedule when they close on their loan request, and you may have this document in your paperwork. If you are applying for a new loan or if you have lost your amortization schedule, you can use an online amortization schedule calculator to generate the results you desire. A smart idea is to review your lender’s website for an amortization schedule first. If you cannot find one on the website, you can find numerous amortization calculators with a quick Internet search.

While amortization may not be a term that you are currently familiar with, you can see that it is a term that you should learn more about. Keep in mind that you can also use an amortization schedule or calculator when analyzing other types of loans as well, such as an installment loan or a car loan. Keep these points in mind as you work to make wise financial decisions.