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How To Create, Use, and Understand Amortization Schedules
Do you need to calculate a loan payment including interest and principal?
Would you like to find out where you are in your loan payoff process and how much principal is still owed?
Our Amortization Schedule Calculator is a flexible solution that will create a free amortization schedule you can print and keep for future reference.
To understand how amortization schedules work, and how to use them to find your loan payment, interest costs, and more, read on . . . .
Amortization Schedules 101
An amortization schedule is a table detailing each periodic payment on an amortizing loan. Amortization is the process of paying off a debt over time through regular payments.
Loan payments consist of principal and interest. At the beginning of the loan term the interest component of each payment is very high because the balance owed on the loan is high. As the principal gets paid on the loan the proportionate amount of each payment gets reduced until nearly the entire payment becomes principal toward the end of the loan term.
An amortization schedule shows the progressive payoff of the loan and the amount of each payment that gets attributed to principal and interest.
You can create an amortization schedule for any type of loan, but it is commonly used on mortgage and car loans. It is difficult to calculate the amortization table by hand, but fortunately this Amortization Schedule Calculator makes it easy.
Disadvantages Of Amortized Loans
Although amortized loans are the most common, there are specific characteristics of these loans that you want to watch out for.
Amortized loans do not build up much equity on the front end of the loan. For example, you’ll notice this with your mortgage. Even if you’ve been paying your 30-year mortgage for seven years, you’ll still owe quite a bit more of the original loan balance than you might expect. That’s because the early payments are mostly interest.
Additionally, many amortized loans do not have language explaining the full cost of borrowing. Terms and conditions on loans like car loans, personal loans, or payday loans might leave an impression that payments are equally split between principal and interest.
Many first-time borrowers are astonished to find out they are paying so much interest on the front end. Thankfully, the Amortization Schedule Calculator will reveal exactly how much you are paying, and when.
How Fast Can I Pay Off An Amortized Loan?
When your loan is amortized, your lender calculates your equal monthly payments so that you will pay off your loan coincident with the end of the loan term. If you want to pay off your loan faster, you need to increase your principal payments. Doing so has a couple of benefits:
- You will pay exponentially less interest when you increase your principal payments. Many lenders allow you to make principal-only payments in addition to your regularly scheduled payments.
- By paying off your loan faster, you can avoid the stress that comes with debt. You don’t necessarily need to take a shorter loan term to pay off your debt faster. Remember you can pay off, for example, a 30-year mortgage in 15 years by paying it like a 15-year mortgage. This method can help you avoid the stress of having to make a higher monthly payment while enabling the option of paying off the loan faster.
For motivation to add extra principal to your payments, just use the amortization schedule calculator to figure out how much interest you will save. Depending on terms, the amount can be dramatic.
How To Find Loan Payments And Interest Costs
You can find total interest costs using the Amortization Schedule Calculator by scrolling down to the end of the amortization schedule where it shows the grand total for both principal payments and interest payments.
It will also show your loan payment amount and how much of each payment goes toward principal and interest. You can calculate loan payments for a number of intervals, including monthly, quarterly, semi-quarterly, and annual intervals.
An amortization table is a very useful tool for making financial decisions. While calculating your loan amortization by hand or through the use of spreadsheet is difficult, the process is simple with the Amortization Schedule Calculator.
Use this calculator to plan your debt payoff and reduce your total interest costs so you can advance from paying off debt to building wealth.
Amortization Schedule Calculator Terms and Definitions
- Purchase Price – The amount of money that is paid for something.
- Amortization – The process of paying off a debt over time through regular payments.
- Amortization Schedule – A table detailing each periodic payment on an amortizing loan.
- Down Payment – An initial payment made when something is bought on credit.
- Amount to Finance – The actual amount of credit made available to a borrower in a loan.
- Annual Interest Rate (Interest Rate Percentage) – The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.
- Loan Term – Number of months or years that you will be paying your loan.
- Payment Type – Frequency of your loan payment.
- Payment – The amount paid at regular intervals indicated by the payment type.
- Principal – A sum of money lent or invested on which interest is paid.
- Interest – Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.
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