Calculating Mortgage Amortization

Mortgage amortization is calculated on the basis of an amortization schedule. This is a table showing every regular payment on an amortizing loan. In that case, it is typically a mortgage where the principal sum is repaid over the term in the form of equal payments. The calculations for the mortgage are those of a series of fixed payments over a specific term. A portion of the principal and a portion of the interest constitute the payments to the loaner, typically the banking institution giving the mortgage. In calculating mortgage amortization, the value of money is used, expressed through a certain amount of interest that is acquired over a given amount of time. This is achieved by means of an amortization calculator.

Amortization involves the process of repaying a mortgage or loan over time in regular intervals. The interest rate varies depending on the amortization schedule. The exact amount going toward the principal is different every time, with the rest going for interest. The schedule shows the exact sum used towards the interest and the principal. At the beginning a large amount goes towards the interest. With time, larger amounts are required for covering the principal sum.

The types of amortization include bullet amortization (at once), annuity, declining balance, straight line, and increasing balance. The last is also referred to as negative amortization. Schedules of amortization run in a chronological order. The first payment usually occurs one full cycle after the mortgage has been taken out, not on the date of amortization (the first day). As the last payment typically pays off everything that is outstanding, its amount differs from earlier ones.

Calculating mortgage amortization is a difficult task. The process takes into account the principal-paid-to-date, the interest-paid-to-date, and the remaining principal balance, apart from the interest and principal in general.

In the first eighteen or so years of the mortgage loan, up to 90 percent of the total payment goes towards interest. Eventually, the payments towards interest and principal even out, but that does not happen until at least 21 years have passed. So, be careful with mortgages. You end up paying more than 500 percent of the original amount. If you opt for “re-amortization”, the entire cycle starts over. The new mortgage begins 30 years from the date of refinancing, and the first payments will be going toward interest again. The main difference between Canadian and U.S. mortgages is that the former are compounded twice a year and the latter on a monthly basis. Here is the formula for calculating mortgage amortization in Canada:

Monthly Payment = (P*(((1+i/200)^(1/6)-1))/(1-(((1+i/200)^(1/6)))^-(n*12)))


n = number of years
i = percentage of annual interest rate
P = principal outstanding

If this formula for calculating mortgage amortization makes you freeze, you can get in touch with a bank representative or use a mortgage calculator.