Amortization Tables

By definition, a loan is amortized if it is for a specified amount and is set to be repaid at a specified date. Amortized loans include home loans and car loans, and can be contrasted to revolving loans such as credit cards. Many mortgages, such as fixed rate mortgages, are set up to amortize fully over a specified term, such as 15-years or 30-years.

In the beginning of these loans, a very small amount of the monthly payment goes toward repaying the loan’s balance, while the largest part of the payment pays for that month’s interest. However, each month the loan’s balance is reduced, and the next month less of the fixed payment goes to interest and more goes to principal. On a 30-year fixed rate mortgage, about half of the principal will be repaid after 21 years.

It is often advantageous to know exactly how much of your payment is going to principal and how much to interest in a particular month, or how much of your balance will have been paid at a particular time.

You might want to know this information in order to determine how much equity you have built in your home. You might also use this information to help determine whether it would be to your advantage to make extra payments, and if so, in what amount.

Luckily, there is an easy way to determine the entire amortization schedule for any loan, or even compare schedules of two or more loans you are considering. Amortization tables can be found for free online, and are useful in making these determinations. Amortization tables work by allowing you to put in information about your loan’s term, amount, interest rate, and starting month.

They then calculate the monthly payment for the loan, as well as how much of each month’s payment will be applied to interest and principal, respectively. The total amount of equity you will have built at any particular time is also listed.

Amortization tables are not only useful for making the decisions or finding the information listed above. They can also be a useful tool for comparing loans of different terms, such as a 15-year and a 30-year fixed rate mortgage, and helping you see the benefits gained in exchange for higher monthly payments on the shorter term loan.