How to Calculate a Mortgage Amortization
American banks structure mortgages so borrowers' payments apply more toward the interest than the loan's principal. This makes computing the fine details of your mortgage's amortization schedule an exercise in accounting. For most traditionally structured mortgages, the monthly payments on an amortization schedule can be easily calculated by hand. A variety of online amortization calculators, spreadsheets and amortization software packages are available to provide the computational muscle to calculate more than the basic monthly payments.
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Instructions
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1
Define your principal, variable P. This is the amount of money borrowed to pay for your home.
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2
Define the length of the amortization schedule in years, variable L.
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3
Define the interest rate, variable I, charged against your principal.
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4
Calculate the monthly payment amount, M, using this formula, following the mathematical order of operations (tackle the innermost parenthesis first, apply exponents next and perform arithmetic computations last):
M = P x [I/(12 x 100)]/(1 -- [1 + (I/[12 x 100]) ^- (M x 12)])
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5
Plot the amortization table using monthly payment M as a basis for other figures.
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6
Calculate your monthly interest amount in the amortization table, i, as P x [I/(12 x 100)].
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7
Calculate the monthly payment to be applied toward the principal, m, as M-i.
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8
Calculate the ending monthly amount owed on the principal as P-m.
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9
Repeat Steps 6-8 for every month in the amortization period.
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Tips & Warnings
If you don't want to do the math by hand, the Excel Amortization Schedule is a free tool that automatically calculates these tables from a loan's starting point (see Resources).
