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What Is an Amortization Table and How Does It Work?

Sarah Fisher
Here's how an amortization table works.

An amortization table shows the schedule for paying off a loan, such as a mortgage. Learn how to make and use one to determine your own loan payoff schedule. You could use the amortization table for other types of loans such as student loans or personal loans, but it helps to know how to make one first. If you need more hands-on help understanding your loans and your overall financial picture, considering enlisting the help of a trusted financial advisor.

How an Amortization Table Works

Amortization tables work best with lump-sum loans with fixed interest rates. They also work best with loans that get paid down gradually over time, and your payment is the same dollar amount each month.You can do this with a mortgage, but it works with car loans and personal loans as well.

The payments you make will be the same each month, but the amount of principal you pay on the loan versus the amount of interest you pay will change with each payment. You will gradually pay off more principal each month. An amortization table can show you how your payment breaks down to principal paid and interest paid, and will also keep track of how much principal you have left to pay.

Amortization tables do not typically show additional charges you pay on your loan, other than interest. For example, if you have to pay non-interest closing costs to get your mortgage, those fees should be evaluated separately.

How an Amortization Table Helps

The information in an amortization table makes it easier to compare lenders or loan options. If you are considering refinancing an existing loan or moving from a 15-year loan to a 30-year loan, the table can show the pros and cons.

While a low monthly payment may be enticing, interest costs shown on an amortization table show the true cost of a loan. A low payment may indicate more interest over an extended payment period.

How to Make an Amortization Table

Here's how an amortization table works.

If you’re working with a spreadsheet, you’ll probably want to make six columns. If you’re working with a pen, paper, and calculator, you really only need five columns. The first column will be “Payment Amount.” The second column is “Interest Rate,” and it’s optional if you’re using a pen and paper. The third column is “Remaining Loan Balance.” The fourth column is “Interest Paid.” “Principal Paid” is the fifth column, and “Month/Payment Period” is the sixth and last column.

For this sample amortization table, the loan is $2,500 a month, the interest rate is 5%, and the payment amount is $300 a month.In the first row, you’ll put $300 in the payment amount column, .05 in the interest rate column, and 1 in the month/payment period column. Under “Remaining Loan Balance,” in the first row, you put in the amount that you borrowed. The interest rate will not change.

Next, multiply the interest rate by the remaining loan balance ($2,500 x .05 = $125). That $125 goes under the “Interest Paid” column. To get the “Principal Paid” number, subtract “Interest Paid” from “Payment Amount” (in the first row, $300 – $125 = $175). So “Principal Paid” in the first payment period is 175.

To get “Remaining Loan Balance” in the second row, take “Remaining Loan Balance” from the first row, and subtract the “Principal Paid” in the first row ($2500 – $175 = $2325). When calculating “Remaining Loan Balance” in the third row, you take the $2,325 “Remaining Loan Balance” from the second row, and subtract “Principal Paid” from the second row.

To make the calculations in the second row, first take the “Remaining Loan Balance” in the second row and multiply that by the interest rate. ($2,325 x .05 = $116.25). Subtract the $116.24 “Interest Paid” from the “Payment Amount” to get the “Principal Paid” ($300 – $116.25 = $183.75).

Amortization Table Example

For reference, the values in this table are rounded to the second decimal.

Payment Amount Interest Rate Remaining Loan Balance Interest Paid Principal Paid Month 300 .05 2500 125 175 1 300 .05 2325 116.25 183.75 2 300 .05 2141.25 107.06 192.94 3 300 .05 1948.31 97.42 202.58 4 300 .05 1745.73 87.29 212.71 5 300 .05 1533.01 76.65 223.35 6 300 .05 1309.67 65.48 234.52 7 300 .05 1075.15 53.76 246.24 8 300 .05 828.91 41.45 258.55 9 300 .05 570.35 28.52 271.48 10 300 .05 298.87 14.94 285.06 11 14.50 .05 13.81 .69 13.81 12

The last value in this table is smaller than the other values because the balance is almost entirely paid off. All that’s left to pay is the remaining balance – $13.81 – plus the 5% interest on that balance, which is 69 cents. That makes the final payment $14.50.

How to Use Amortization Tables

Here's how an amortization table works.

You might want to know how quickly you could pay off a potential loan. If you have already taken out a loan, changing the monthly payment may affect the payoff date.

By choosing a 15-year loan over a 30-year period, a borrower can save on interest. Borrowers who can handle higher monthly payments often end up with a discount on short-term loans compared to long-term payments.

Those who can pay more than a loan’s interest rate will see rewards on the amortization table, too. Every dollar a borrower pays over the interest rate lowers the loan’s principal. That reduces the amount paid in interest the next month.

Bottom Line

Taking out a loan or a mortgage can be a big decision. It’s a good idea to sort out your debt and see what you spend each month. The interest rate can be just as important as an affordable monthly payment

Mortgage Tips

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