Amortization Schedule

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Updated September 14, 2020

What Is an Amortization Schedule?

An amortization schedule is a chart that shows the amounts of  principal and interest due for each loan payment of an amortizing loan. An amortizing loan is a loan that requires regular payments, where each payment is the same total amount. A portion of the payment pays the loan interest while the remainder pays down the balance of the loan principal. 

The amortization schedule lists the payments by their date due and shows the breakdown of interest and principal paid towards the loan for each payment.

Consumer loans, such as auto loans or mortgages, are usually designed as amortizing loans. But there are many types of loans that could have amortization schedules. These can include:

  1. Mortgages
  2. Car loans
  3. Home loans
  4. Personal loans
  5. Paycheck protection program

Mortgages, however, are the most common reason why people need an amortization schedule.  An amortization schedule for a mortgage displays the exact amount applied to the principal and interest in each monthly loan repayment

Early on in the repayment phase, most of the payment will go towards paying interest. As time goes by, that balance shifts so that more money from each payment is applied towards the principal until the loan is satisfied.

Where to Find an Amortization Schedule

Investing Answers provides a mortgage calculator and an amortization loan calculator to create your own amortization schedule. Banks often provide an amortization table to show borrowers how much they’ve repaid towards the principal and how much is left on their loan.

The Six Types of Amortization

When taking out a loan, it’s important to understand the terms of the loan, including the type of amortization the lender is using to calculate your repayment schedule. The type of amortization can affect the amount of interest paid over time, the amount of the final payment due, and other variables. 

Amortization techniques depend upon the lender and the type of loan. There are six types of amortization with each generating its own amortization schedule:

1. Straight Line Amortization

In straight-line amortization, the interest amount is distributed equally over the lifetime of the loan. This means that both the principal payment and the interest payment remain unchanged during the term of the loan.

2. Declining-Balance Method

This is an accelerated method of amortization in which the interest payment declines while the principal payment increases with the age of the loan. The benefit of declining-balance method amortization is that it can, over the lifetime of the loan, lead to lower interest charges. It can also help you repay the principal faster.

3. Annuity

Amortization in the annuity method sets forth a schedule of payments over a fixed time period. There are a few variances in the annuity method, and each generates a different amortization schedule. Home mortgages are a form of constant payment annuity in which the amount of each monthly payment remains the same over the term of the loan, but as each payment is made, more money goes towards the principal.

4. Bullet

Bullet loans repay the interest over time and leave the main principal payment to the end of the loan term.

5. Balloon

Balloon loans can be amortized. With a balloon loan, the majority of the monthly payments go towards interest, but a small amount of the principal is repaid. The balance of the principal is repaid at the loan’s maturity.

6. Negative Amortization

In negative amortization, the total payment for a period is lower than the interest payment for the same period. The excess interest is added to the principal which increases the balance of the loan.

Amortization Schedule Example

It’s easier to understand amortization schedules when viewing an example. This shows the amortization schedule for a $1,000 loan at 5% with a 1-year term. The total payment is the same each month. The interest portion of the payment decreases over time while the principal portion increases over time.

Amortization schedule example

How to Create an Amortization Schedule

You can create an amortization schedule using a common spreadsheet program such as Excel. Here are the steps to create an amortization schedule in Excel:

  1. Open a new spreadsheet.
  2. Set up your columns to include a list of items and the amounts: [show example]
  3. Use the PMT formula to calculate the payment. Click on the cell where you wish to display the payment and use the following formula, changing each term to the cell number for the term=PMT(AnnualInterestRate/PaymentsPerYear,Years*PaymentsPerYear,Amount)
  4. Next, calculate the principal. The formula is: =PPMT(AnnualInterstRate/PaymentsPerYear,PaymentNumber,Years*PaymentsPerYear,Amount)
  5. Calculate the interest as the Total Payment amount - Principal payment. 
  6. Update the balance by adding the loan amount and the principal payment. 
  7. Copy/paste the previous line into the next line.
  8. Update the formula so that the only number that changes is the payment number.
  9. Continue until you have the table completed.

You can also download a loan amortization spreadsheet from Microsoft Office that has the formulas ready to use. Plug in your numbers and you’ve got your amortization schedule. 

The example spreadsheet shown here reflects a home loan of $250,000 for a 2.5% fixed rate over a 20-year period. We’ve calculated just the first few rows to demonstrate what the amortization schedule looks like for our example.

Amortization schedule in excel

How to Calculate Amortization

You can calculate amortization using a formula, a spreadsheet, or an online calculator.

Calculating the Payment Amount Per Period

The formula for calculating the payment amount is shown below.

Amortization formula

where

  • A = payment Amount per period
  • P = initial Principal (loan amount)
  • r = interest rate per period
  • n = total number of payments or periods

Let’s assume John and Susan took out a home loan of $20,000 at a rate of 7.5% per year. Their loan term is 5 years.
P = $20,000 
r = 7.5% per year / 12 months = 0.00625% per period 
n = 5 years * 12 months = 60 total periods

A =  20,000  0.0625(1+0.00635)60
        (1+0.00635)60 - 1

A = $400.76

Their car payments will be $400.76 per month.

How to Calculate an Amortization Schedule with Extra Payments

Many people choose to make additional payments to pay their loans off faster. If you can put the extra payment towards the principal, you can shorten the amortization time and reduce the amount of interest. 

Here’s a mortgage calculator with extra payments to help you figure out how much you can save over time. 

Amortization vs. Mortgage Term

Many people get confused between mortgage amortization and mortgage term. 

Mortgage amortization refers to the length of time you have to repay the loan. If you take out a 20-year loan, you have 20 years to pay off the mortgage.

Mortgage term, however, refers to the term of your contract with the lender. Your mortgage term locks you into the rate set by the lender when you sign the agreement. At the end of the mortgage term, you can shop around for a better rate (if you choose to) and even switch lenders. If the rate changes, the new lender may draw up a fresh amortization schedule so you can see how the new rate impacts your payments. 

Of course, with links to InvestingAnswers’ amortization and mortgage calculators, you can work it out on your own while finding a better deal on your mortgage.

Ask an Expert

InvestingAnswers is on a mission to help consumers build and protect their wealth through education. That is why we have experts answering your pertinent questions at the end of each article.

What is the amortization schedule for a 30-year mortgage?

A 30-year mortgage is simply an amortization schedule spread out over 30 years. For an amortization schedule for a 30-year mortgage, plug the amount of the loan and the interest rate into the amortization calculator or a spreadsheet to determine your amortization schedule.

Do amortization schedules without an interest rate exist?

Conceivably, yes, but it’s unlikely. Lenders are in business to make money, and they do so by charging interest on a loan. If a friend or family member provides a loan, they may agree not to charge interest. In that case, you can draw up your own amortization schedule to repay the loan without the interest.

Are amortization schedule and balloon payments related?

A balloon is a type of loan that doesn’t fully amortize over the course of the loan. Balloon mortgages are the most common type of balloon loan. They are set up as if they will be repaid over a 30 year period, but the payment period is actually 5 to 7 years. At the end of the payment period, the remaining principal is due in one lump payment (a “balloon” payment) or the borrower has to refinance the loan.

Balloon mortgages amortization

Balloon mortgages typically use a 30-year amortization schedule to calculate monthly payments. This may seem appealing because balloon mortgage interest rates are lower than  those of traditional 30-year loans. However, at the end of the 5 years, only a fraction of the principal is paid off on the loan and the balance is due in full. If the borrower can’t sell the property at a profit, renegotiate the loan, or pay it off, there may be  financial trouble with a massive debt to pay off.