Amortization Schedule for a Mortgage

Updated on March 19, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is The Amortization Schedule For A Mortgage?

Amortization Schedule For A Mortgage is a tabular representation of periodic loan payments that shows how much this loan payment does into repayment of principal amount and how much is for the interest payment. This schedule allows homeowners to keep track of the principal amounts and interest amounts paid towards the lent amount.

Amortization-Schedule

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The top line of the schedule reflects the total payment due, while the last line indicates the total principal and interest amounts paid until the end of the loan term. This schedule helps taxpayers when they fill up their income tax and apply for applicable deductions or advantages.

Amortization Schedule For A Mortgage Explained

Amortization schedule for a mortgage, like any other schedule, provides a clear representation of the principal and interest payments over time. It allows borrowers to keep a watch on the frequency of payments and the amount that is still left to be repaid until the end of the term. In addition, the schedule enables taxpayers to fill in the income tax form and include details fir any tax benefits or deductions, if applicable.

Although all the periodic payments are of equal amount, the initial periodic payments in the schedule include a higher amount of interest. In contrast, the later periodic payments in the schedule are majorly comprised of principal payment.

This variation in the mix of interest component and principal component occurs because, in a loan amortization scheduleLoan Amortization ScheduleLoan amortization schedule refers to the schedule of repayment of the loan. Every installment comprises of principal amount and interest component till the end of the loan term or up to which full amount of loan is paid off.read more, the interest charged in the later periodic payments decreases as the outstanding loan depreciates owing to the payment of the principal component.

Finally, the last line of the mortgage’s amortization schedule table displays the total amount paid in interest and principal during the entire tenure of the term loan.

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Formula

The primary component of the amortization tableAmortization TableThe amortization table reflects the schedule of periodic payments to be made regarding a loan undertaken, representing the principal amount and the interest amount payable in each regular installment. Thus, it is a detailed working of the loan repayment.read more for a mortgage is the periodic payment, the principal payment, and the interest payment.

To know how to calculate different elements used in amortization schedule for a mortgage. The first among them is the periodic payment, which is calculated using the below-mentioned formula:

Periodic Payment = Outstanding Loan * Rate of Interest * (1+ Rate of Interest)No of Periods / [(1+ Rate of Interest)No of Periods – 1]

The formula for interest paid during a single period (between two successive periodic payments) is straightforward as given below,

Interest paid = Outstanding loan * Rate of interest

The principal component of the term loan in the periodic payment is calculated as,

Principal repayment = Periodic payment – Interest accrued

How To Create?

The amortization schedule for a mortgage( in excel) can be derived in the following seven steps:

  1. Identify initially the outstanding loan amount, which is the opening balance.

  2. Then, figure out the rate of interest being charged for each period.

  3. Now determine the tenure of the loan amount, which is the remaining number of periods.

  4. Based on the available information, the amount of periodic payment can be computed with the above-given formula of the periodic payment.

  5. Now, the interest paid between two successive periodic payments is calculated by multiplying the outstanding principal with the interest rate being charged, which is,

    Interest paid = Outstanding loan * Rate of interest.

  6. Now, since the periodic payment comprises of both interest and principal component, the principal component for the period is derived by deducting the interest accrued from the overall periodic payment, which is,


    Principal repayment = Periodic payment – Interest accrued

  7. Finally, the closing balance is computed by deducting the principal repayment from the opening balance, which is,

    Closing balance = Opening balance – Principal repayment

    The below tabular representation is an illustration of an amortization schedule in excel (for a mortgage)

    tabular representation of amortization schedule

Example

Let us assume that there is a company that has $1,000,000 of loan outstanding, which has to be repaid over the next 30 years. The equated annual repayment will be made annually at an interest rate of 12%.

Therefore, as per the question,

  • Outstanding loan = $1,000,000
  • Rate of interest = 12%
  • No. of period = 30 (since payments are annual)

Using the above information, we have calculated the Periodic Mortgage Payment for the Amortization Schedule excel table.

amortization schedule formula excel 1.1

So the Periodic Payment will be

periodic payment

Then we have calculated the interest paid using the formula mentioned above.

amortization schedule formula excel 1.3

So the Interest Paid will be –

interest paid

So the table below is the mortgage amortization schedule in excel based on the above information,

result

Therefore, from the above table, it can be seen that the total interest paid is $2,724,309.73 on a loan of $1,000,000, i.e., the interest paid is approximately 2.7 times the actual loan. Also, from the table, it can be seen that the interest paid is more than the principal payment till the 24th year, which indicates the fact that interest payments are higher than the principal payment initially.

You can download this Mortgage Amortization Schedule Excel Template here – Amortization Schedule Excel Template

This article has been a guide to what is Amortization Schedule For A Mortgage. Here, we explain withe concept along with its formula, how to create it, and examples. You can learn more about Excel Modeling from the following articles –

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