A loan amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term. Each periodic payment is the same amount in total for each period.
However, early in the schedule, the majority of each payment is what is owed in interest because the initial outstanding loan balance, which is the basis for the interest calculation, is large; later in the schedule, the majority of each payment covers the loan’s principal because the outstanding loan balance becomes smaller over time as the payments continue to be made.
Key Takeaways
- A loan amortization schedule is a table that shows each periodic loan payment that is owed, typically monthly, and how much of the payment is designated for the interest versus the principal.
- Loan amortization tables can help a borrower keep track of what they owe and when payment is due, as well as forecast the outstanding balance or interest at any point in the cycle.
- Loan amortization schedules are often seen when dealing with installment loans that have known payoff dates at the time the loan is taken out, such as a mortgage or a car loan.
Understanding a Loan Amortization Schedule
In a loan amortization schedule, the percentage of each payment that goes toward interest diminishes a bit with each payment and the percentage that goes toward principal increases. 5% interest rate. The first few lines look like this:
If you are looking to take out a loan, besides using a loan amortization schedule, you can also use a mortgage calculator to estimate your total mortgage costs based on your specific loan.
Amortization schedules can be customized based on your loan and your personal circumstances. With more sophisticated amortization calculators, like the templates you can find in Excel you can compare how making accelerated payments can accelerate your amortization. If for example, you are expecting an inheritance, or you get a set yearly bonus, you can use these tools to compare how applying that windfall to your debt can affect your loans maturity date and your interest cost over the life of the loan. You can do with an auto loan, student loan, mortgage, Home Equity Loan, personal loan, or any other type of fixed term loan.
As well as mortgages, car loans and personal loans are also given for a term set in advance, at a fixed interest rate with a set monthly payment. The terms vary depending on https://paydayloansnc.com/cities/riegelwood/ the asset. Most conventional home loans are 15- or 30-year terms. Car owners often get an auto loan that will be repaid over five years or less. For personal loans, three years is a common term.
Your lender should provide you with a copy of your loan amortization schedule so you can see at a glance what the loan will cost.
Formulas in a Loan Amortization Schedule
Borrowers and lenders use amortization schedules for installment loans that have payoff dates that are known at the time the loan is taken out, such as a mortgage or a car loan. There are specific formulas that are used to develop a loan amortization schedule. These formulas may be built into the software you are using, or you ortization schedule from scratch.
If you know the term of a loan and the total periodic payment amount, there is an easy way to calculate a loan amortization schedule without resorting to the use of an online amortization schedule or calculator. The formula to calculate the monthly principal due on an amortized loan is as follows:
