Why has your loan balance fallen by less than your payments?
Total payments include interest as well as principal. For a home, equity also depends on property value, so it cannot be measured by adding up every mortgage payment you have made.
Amortization calculator →Keep three quantities separate
Cash paid, principal repaid and interest incurred answer different questions. Principal repayment reduces debt; interest pays for borrowing and does not itself reduce the balance. Property equity additionally requires a value estimate and the outstanding debt secured against that property. An amortization schedule tracks the debt side rather than predicting the market value of the asset.
Reconcile a year of payments
Suppose payments during the year total 12,000 and the schedule allocates 7,000 to interest and 5,000 to principal. Debt has fallen by 5,000, not 12,000. If the home remains worth 200,000 while the mortgage falls from 160,000 to 155,000, the simplified equity figure rises from 40,000 to 45,000. These are illustrative accounting amounts, not an estimate of any particular property.
Allow for valuation and selling costs
If the home instead falls in value to 190,000, the simplified equity figure becomes 35,000 despite regular repayments. Selling can also involve transaction expenses and taxes. Use the repayment schedule to monitor borrowing and a separate, supportable valuation for the asset. The basic loan tool does not estimate future house prices or the net cash available after a sale.
Try the calculators
- Amortization calculator
See principal, interest and balance for every payment.
- Mortgage calculator
Understand your monthly payment and the true cost of a home.
- Return on investment calculator
Calculate net gain and ROI from cost, final value, income and expenses.