How to Calculate an Amortazation Schedule

An amortization schedule helps plan loan repayment.

Amortization schedules break down loan payments into the amount that goes toward principal and the amount that goes toward interest. Each month the principal reduces the loan's remaining balance. As the loan balance falls, the interest payments decrease and the principal payments increase. An amortization schedule helps to plot out how the lending institution distributes your loan payments.

Things You'll Need

• Paper
• Pen or pencil
• Calculator

Instructions

1. Create five columns on a sheet of blank paper. Label the columns from left to right as "Months," "Payment," "Interest," "Principal" and "Loan Balance."

2. Enter each month a loan payment is due in the "Months" column starting with month 0, the month the loan originates.

3. Enter the payment amount for the loan in each row of the "Payment" column. Start the payments at month 1.

4. Enter the loan amount in row 0 under the column "Loan Balance."

5. Multiply the loan amount in row 0 under the "Loan Balance" page by the loan's interest rate. Put the answer under row 1 of the column "Interest."

6. Subtract the interest rate from row 1 under the "Interest" column from the loan payment. Enter the difference under row 1 of the "Principal" column.

7. Subtract the number under row 1 of the "Principal" column from the "Loan Balance" amount under row 0 of the "Loan Balance" column. Enter this amount under row 1 of the "Loan Balance" column.

8. Repeat these step for each loan payment until the "Loan Balance" column equals zero.

References

• University of Texas Brownsville: Example of Amortization Schedule
• Vertex 42: Amortization Formulas in Excel
• Marquette University: Amortization Schedules