 TITLE: What to Know About How Mortgage Interest Works CONTENT: What Is Mortgage Amortization?\n------------------------------\nAmortization is a process lenders use to calculate how much interest you pay on a loan and when. With a mortgage loan, as with any loan, you'll pay more interest at the beginning of the loan term and more principal toward the end.\nThis is because your interest rate is being applied to a higher loan balance at the beginning, then as you pay more and more of the principal loan amount, the balance the rate applies to decreases, which brings down your interest charges.\nCalculating amortization on a mortgage loan requires some complex formulas, and it's best to use an amortization calculator. You'll need the loan amount, interest rate and loan term. With an amortization calculator, you'll be able to see several things, including:\n*   How much total interest you'll pay over the life of your new loan.\n*   How much interest you'll pay each month.\n*   How much interest you'll pay with a 15-year mortgage versus a 30-year mortgage, or a fixed-rate loan versus an adjustable-rate loan.\n*   What your loan balance will be at the end of each month—this can help if you're paying private mortgage insurance and want to know when you'll reach an 80% loan-to-value ratio and can get rid of it.\nAs an example, we used an amortization calculator to run the numbers for a $300,000 loan with a 4% interest rate and a 30-year term.\nThe monthly payment on the loan would be roughly $1,432, but in the first month, $1,000 of that goes toward interest, and only $432 goes toward paying down your loan balance. Each month, that amount increases slightly as you pay down your balance. By year 21 the numbers have swapped, $1,000 of your payment will go toward paying down the balance and $432 goes toward interest. When you make your last mortgage payment, just $5 goes toward interest.\nBefore you apply for a mortgage, take some time to use an amortization calculator to understand what you're signing up for, and also to help you compare different loan terms and interest rate types to determine which is the best option for you. END