Straight-line Vs. Mortgage Style Amortization

by Steve McDonnell ; Updated July 27, 2017
Your monthly payment stays the same with a typical mortgage.

In a straight line loan amortization, the amount of the loan principal is divided equally by the number of payments, and the interest is added to each payment based on the remaining principal due. The payments vary each month and are highest at the beginning of the loan term. In a mortgage-style amortization, the total amount of principal plus interest over the entire term of the loan is divided into an equal number of payments. The payments are the same throughout the loan term, though you pay more interest than with a straight line amortization.

Example of the Difference

Suppose you borrow $180,000 at 4.5 percent interest for 30 years, or 360 months. In a straight line amortization, you pay $500 per month plus interest on the remaining principal. Your first payment is $1,173.13, your last payment is $623.75 and you pay a total of $121,162,50 in interest. In a mortgage-style amortization, you pay $912.03 per month, for a total of $148,332.08 in interest, which is $27,169.58 more than the straight line option.

About the Author

Steve McDonnell's experience running businesses and launching companies complements his technical expertise in information, technology and human resources. He earned a degree in computer science from Dartmouth College, served on the WorldatWork editorial board, blogged for the Spotfire Business Intelligence blog and has published books and book chapters for International Human Resource Information Management and Westlaw.

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