A mortgage is a loan used to purchase a home, and it is typically paid back over a period of 15 to 30 years. The payments on a mortgage are made up of two components: principal and interest.
Principal is the amount of money borrowed to purchase the home. It is the "original" loan amount and it decreases over time as payments are made.
Interest, on the other hand, is the fee charged by the lender for borrowing the money. It is expressed as a percentage of the loan amount and it is calculated based on the interest rate and the remaining balance of the loan.
An amortization schedule is a table that shows the breakdown of each mortgage payment into the amount applied to interest and the amount applied to principal. As the payments are made, the interest component decreases, and the principal component increases.
At the beginning of the loan, the majority of the payments go towards interest and only a small portion goes towards paying down the principal. As the loan progresses, the interest component of the payments decreases and the principal component increases, meaning more of the payment is applied to paying down the loan.
A good way to see how the balance of principal and interest shifts over time is to look at the amortization schedule. A schedule will show how much of each payment goes towards interest and how much goes towards the principal, and it also shows how the balance of the loan changes over time.
As the loan term progresses, you will notice that the payments made will have more of an impact on the principal balance of the loan. By the end of the loan term, most of the payment will be applied to the principal, and the interest component will be minimal.
In conclusion, a mortgage is a loan used to purchase a home, the payments on a mortgage are made up of two components: principal and interest. The principal is the original loan amount and it decreases over time as payments are made. Interest is the fee charged by the lender for borrowing the money, and it is expressed as a percentage of the loan amount. An amortization schedule shows the breakdown of each mortgage payment into the amount applied to interest and the amount applied to principal and it's a good way to see how the balance of principal and interest shifts over ti