How Amortization Tables Work: Overview and Examples
An amortization table is a data table that illustrates the process of paying off a loan, with details for every payment. For each month, the table provides your loan balance, interest charges on your loan, and the amount of principal that you pay off.
Amortization tables help you understand how a loan works, and they can help you predict your outstanding balance or interest cost at any point in the future.
With all that information, you can evaluate if you should pay off debts early, which loan is least expensive over time, and it even makes sense to borrow in the first place.
What Do Amortization Tables Show?
Scroll down for an example of how an amortization schedule looks, or use this interactive amortization table in Google Sheets (which you can customize for your own loans). You’ll see the items listed below.
- Scheduled Payments: The table shows every payment you make—or your required monthly payments. Out of that payment, a portion goes toward interest expenses, and the remainder pays down your loan balance.
- Interest Expenses: Interest is typically charged on your loan each month. To calculate the interest charge, multiply your remaining loan balance by your monthly interest rate. Especially with long-term loans, you should find that the interest eats up most of the payment in the early years.
- Principal Repayment: After you apply the interest charges, the remainder of your payment goes toward paying off your debt. Your loan balance decreases over time as you move through an amortization schedule.
- Cumulative Interest: Some amortization tables also include running totals that add up interest and payments over time. Almost any amortization schedule shows how much you spend on interest with each payment—but what if you want to know how much the total interest charges are over the first (or last) three years of the loan?
- If your table includes a column for something like “cumulative interest,” it’s easy to find out. If not, you can copy and paste the table into a spreadsheet and add additional columns for this information.
- Extra Payments? Basic amortization tables do not account for additional payments. But that doesn’t mean you can’t pay extra—and you can even calculate the benefit of those payments. To do so, you might need to build your own amortization table, but it’s not as hard as it sounds.
- Fees (Besides Interest)? Amortization schedules typically do not show additional charges that you might pay on your loan. For example, if you pay origination fees or other closing costs to get a mortgage, you need to evaluate those fees separately. One way to do that is with the loan’s APR (which can sometimes be misleading). For finance charges that result from your loan balance, it is possible to build your own table and include those charges—see how to Calculate Credit Card Payments and Costs.
With the information above, it’s easy to evaluate different loan options (whether you’re comparing lenders, choosing between a 15- or 30-year loan, or deciding whether or not to refinance an existing loan).
Most borrowers never look at how much they pay in interest. Instead, they focus only on an affordable monthly payment—which does not take the big picture into account.
Types of Loans
An amortization table works best for loans with the following characteristics:
- They are lump-sum (or all-at-once) loans.
- They have fixed interest rates.
- They get paid down over time (the process of paying down a loan is called “amortization”).
- The monthly payment is fixed (you make the same payment every month).
Other types of loans—specifically variable rate loans and lines of credit—are harder to work with, but you can certainly calculate how they work. For example, credit cards are especially tricky: You borrow over and over (every time you make a purchase), and you make irregular payments, with the option to pay the minimum, the entire balance, or anything in between.
Adjustable rate mortgages are also challenging. The interest rate might change at some unknown point in the future, so it’s difficult to do an amortization calculation unless you can predict the future.
Sample Amortization Table
Assume you borrow $100,000 at 6 percent for 30 years to be repaid monthly. How would your amortization schedule look? Below you’ll see the first 12 lines (detailing your first year of payments) and then the table skips to the end of the loan.
|Month||Beginning Balance||Scheduled Payment||Principal||Interest||Ending Balance||Total Interest|