What is an Amortization Table?
What does an Amortization Schedule Show?
An amortization table is a data table that shows the process of paying off a loan, with details for every payment. For each month, an amortization 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 can help you predict your outstanding balance or interest cost at any given time in the future.
This information helps you evaluate if it makes sense to borrow, if you should pay off debts early, and which loan is least expensive over time.
What does an Amortization Table Show?
Scroll down for an example of how an amortization schedule looks, or plug some numbers into an online amortization calculator and get a customized table. You’ll see the items below.
Monthly payment: the table shows every payment you make, which means your required monthly payments are included. Out of that payment, a portion will go towards interest expenses, and the remainder will be used to pay down your loan balance.
Interest expenses: interest is generally charged on your loan each month. Your remaining loan balance is multiplied by your monthly interest rate to calculate the interest charge. Especially with long-term loans, you may see that the interest eats up most of the payment in the early years.
Principal repayment: after you take the interest charges, the remainder of your payment goes towards paying off your debt.
You should see your loan balance decrease 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. For example, 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 a table into a spreadsheet and add additional columns for this information.
Extra payments? Most amortization tables do not account for extra 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 fees 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 to look at the loan’s APR (which can sometimes be misleading). For finance charges that are charged to 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 easier to evaluate different loan options (whether they come from different lenders, you’re deciding between a 15 or 30-year loan, or you’re deciding whether or not to refinance an existing loan), and to decide whether or not borrowing makes sense at all.
Most borrowers never look at how much they’re paying in interest – 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 more difficult to work with. For example, credit cards are especially tricky: you borrow over and over (every time you make a purchase), and you make irregular payments (you can 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% 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 it skips to the end of the loan.
|Month||Beginning Balance||Scheduled Payment||Principal||Interest||Ending Balance||Total Interest|