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How does an amortization schedule work?

Amortization schedules are reference tools for mortgage loan borrowers to precisely determine the pending interest and principal pending on any given date. 

Amortization schedules make the mortgage loan repayments more comfortable and to close them over some time with a fixed amount of monthly scheduled payments. In Canada, the amortization schedule is commonly 25 years, which is ideal for those availing the mortgage loans to pay them systematically every month.

Beyond 25 years will end up paying more interest towards the borrowed mortgage loan amount.

Less than 25 years will end up in paying the amortization schedule every month with high amounts. To explain how amortization schedules work, let us take an example of a $10,000 mortgage loan taken at 12 % interest per annum.

The 12 % interest is only for peaceful demonstration purposes as it calculates monthly 1 % of the mortgage loan amount. The first-month payment of $ 350 will reduce the principal by $ 250 to $ 9,750 for the next month as $ 100 goes to the interest to the lender at 12% annually.

For the next monthly payment of $ 350, the interest taken from it is only $ 97.5, as $2.5 is reduced due to the principal coming down to $9,750. And the contribution to the principal for the second-month payment of $ 350 will be $252.5, and it continues recurrently to reduce the principal to zero by the stipulated period. And anyone can calculate the pending principal with this amortization schedule.

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