Florida Mortgage Questions: How Does My Monthly Payment Pay Off My Florida Mortgage?

Florida mortgage applicants may already know that there are multiple parts to their mortgage payment, however they may not understand how parts of that house payment apply towards reducing what they owe on their Florida home loan. You can read below for more explanation of this, or you can watch me explain it via video.

Amortization:

Usually the largest, and perhaps most important portion of the mortgage payment is the section known as the "principal and interest payment". It's name is fairly self explanatory since it pays both Principal (the amount owed on the loan), as well as Interest (the finance charge for loan). What is equally important to note is that while the total Principal and Interest Payment will remain the same throughout the life of the loan on a fixed rate home loan, the amounts amount applied to Principal and the amount applied toward Interest changes each month. This is due to something called "Amortization". It's a strange word that you may not use much unless you're talking about your mortgage, but it comes from a Latin word that means "to kill". This is because your monthly payment is slowly "killing" the balance of what you owe on your mortgage.

It is possible to have a loan that does not amortize, but these are considered riskier types of loans than a fully amortizing loan. Non-amortizing mortgages are rarely offered at this time. If you are discussing a 30 yr fixed mortgage, 15 yr fixed mortgage, or even an Adjustable Rate mortgage, then almost certainly any of those options are fully amortizing loans that will ensure that a portion of your payment is being applied toward paying off the mortgage on your Florida home.

How Does Amortization Work?

As previously mentioned, this is accomplished by making a payment each month, and with each payment a part is going toward the principal and a part is going toward the interest.

Principal and Interest are on a "sliding scale"; at the beginning of the mortgage most of the payment is going toward Interest and then as you make more payments, more begins to go toward Principal.

There is a mathematical formula for calculating this (it is possible, but time consuming to do it by hand). It is much more easily accomplished by using a mortgage calculator and these are easily found online or by using a phone app that will do it for you.

Mortgage Payment Calculator With Amortization Schedule:

If you really want to know how much is going toward principal balance with each payment, do a search for "amortization schedule". That schedule will show you, month by month, exactly how much is going towards principal and how much is going toward interest, and you will be able to see how it changes as time goes on.

Here is a fictional example: If you have a $100,000 loan at 6% interest rate on a 30 year term, then you have a monthly principal and interest payment of about $600. Of that $600, about $500 of that is going towards interest and about $100 is going toward principal. As time goes on, each month about $.50 MORE goes toward paying down the principal and $.50 LESS goes toward paying interest.

This example should make it evident that at the beginning of your loan you are reducing the principal balance slower than you are at the end of the loan. If you are considering applying for a mortgage in Florida, or perhaps already have a mortgage payment, I would suggest you plug your own numbers into a mortgage loan calculator and see what the numbers are for your own personal mortgage scenario.

I address more Florida mortgage questions at my website: BestMortgageLoanRateInFlorida.com

If you have more questions that I can address directly, you can email me at Taylor@USmtgLender.com.