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When you take out a mortgage, you’ll want to know exactly how much each mortgage payment will be and how long it will take you to pay off your home loan in full. That information is vital to help you budget appropriately. But you might also be curious about exactly what each mortgage payment is made up of.

More specifically, how much of each mortgage payment will go towards paying your principal versus interest? And how will your payment structure change over time?

That’s where an “amortization schedule” comes into the picture. Your amortization is the length of time that you have to pay off your home loan in its entirety. Common amortization periods are longer as opposed to shorter because they give borrowers more time to pay off their mortgage and take advantage of lower monthly payments. 

But what exactly is an amortization schedule, and what kind of useful information will it give you about every mortgage payment you make?

What Is An Amortization Schedule?

An amortization schedule is a table that details every mortgage payment you will make over the life of your loan. It’s typically broken down annually and will show the details of each payment for each consecutive year. Part of each payment is applied to the principal portion of your mortgage, and another part is applied to interest.  

What Is Shown On An Amortization Schedule? 

Your amortization schedule will tell you how much you will pay in your mortgage over time. More specifically, your amortization schedule will show you the following:

  • Interest
  • Principal
  • Extra payments (if applicable)
  • Total amount paid (per year and over the life of the loan)
  • Remaining loan balance

Your amortization schedule will show you exactly how much of your total mortgage payment is going toward your principal and how much is going toward interest. During the early years of a mortgage, a larger portion of your mortgage payment will likely go toward your interest. As you continue to make timely payments, the interest portion will steadily decrease, while the portion going toward the principal will increase. 

How To Calculate An Amortization Schedule 

Calculating the payments on an amortization schedule involves intricate mathematical equations and concepts. Luckily, there are mortgage calculators available online to help you break down your mortgage payments into principal versus interest for any given year.

For illustration purposes, here is an example of what an amortization schedule could look like based on a $500,000 home with a 5% down payment, a 5-year fixed term at 2.89%, and an amortization period of 25 years:

YearTotal Amount PaidPrincipalInterestLoan Balance
2021$27,720.00$13,709.00 $14,012.00$480,291.00
2022$27,720.00$14,108.00$13,613.00$466,184.00
2023$27,720.00$14,518.00$13,202.00$451,665.00
2024$27,720.00$14,941.00$12,780.00$436,724.00
2025$27,720.00$15,376.00$12,345.00$421,348.00

As you can see from the table above, your mortgage payment stays the same year after year, but the principal component increases while the interest portion decreases. This trend keeps up until your entire loan amount is paid off. 

Do you know the difference between an amortization period and a mortgage term?

Short vs. Long Amortization Schedules

When you take out a mortgage, you have some choices in terms of how long you want the amortization schedule to be. More specifically, you can choose between short-term amortization periods – such as a 15-year mortgage – or long-term amortization periods – such as a 25-year mortgage. There are pros and cons to each, so you will want to weigh them all before you decide which route to take. 

Long amortization pros:

  • Lower monthly payments

Long amortization cons: 

  • Takes longer to pay off your mortgage
  • More interest will be paid over the long run

Short amortization pros: 

  • Be mortgage-free sooner
  • Less mortgage is paid overall

Short amortization cons:

  • Higher mortgage payments

One isn’t necessarily better than the other. It all depends on your situation. For instance, if money is tight, a long-term amortization period may be ideal because your monthly mortgage payments will be a lot lower. But if you are capable of making big payments, you can save on interest and become mortgage-free sooner rather than later.

Concerned about the mortgage stress test?

Extra Payments And Their Effect On Amortization Schedules

Despite having a specific amortization schedule that you stick to with the goal of repaying your entire loan amount, you may also have the opportunity to make extra payments from time to time if you fall upon some extra money. Many lenders will allow an extra payment once a year that can go entirely towards your principal loan amount. This can help you pay your mortgage down faster and help you save money on interest.

You may also opt for an “accelerated” payment schedule that allows you to add extra payments to your mortgage, which does the same thing to help you save money and get rid of your mortgage faster. In Canada, accelerated payment schedules are available in bi-weekly and weekly formats. 

For instance, with a bi-weekly accelerated payment option, your monthly mortgage payment would be divided by 2, then paid over 26 periods throughout a 12-month time frame. Payments will be slightly higher and the total of those extra payments would amount to about one extra payment per year. 

With the weekly accelerated payment option, the monthly payment amount would be divided by 4 and paid over 52 periods throughout a 12-month time frame. Like bi-weekly accelerated payments, every extra payment will be a bit higher compared to a regular weekly payment option.

Looking to apply for a mortgage this year? Check out this mortgage documents checklist.

Final Thoughts

There’s so much to know about mortgages. But considering the type of commitment you’re making, it’s prudent to take some time to get to know all there is to know about mortgages, and that includes your amortization schedule. Make sure to discuss your options with your mortgage specialist to help you choose which amortization schedule is best suited for you.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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