Amortization Table

Amortization Table Definition

Amortization table reflects the schedule of periodic payments to be made in respect of a loan undertaken, representing the principal amount and the interest amount payable in each periodic installment. Thus, it is a detailed working of the loan repayment, containing particulars of equated installments, its principal portion and interest portion for each installment until the loan is repaid.

Characteristics

An amortization tables work best for the following kind of loans.

• The loan disbursement is done as a lump-sum-amount.
• The loan has to be repaid over a period of time in monthly installments.
• The installment that is paid each month is of equal amount, known as equated installment.
• The rate of interest that is being applied to the loan is fixed.

How does Amortization Table Work?

It is basically a repayment schedule for any loan. It reflects the total number of installments that are to be made for total amortization i.e. entire repayment of the loan. The loan amortization schedule reflects the monthly installment and the breakup of principal repayment and interest in each installment. Although the monthly installment will be the same for each month, the breakup of principal repayment and interest will be different for each month due to the fact that loan outstanding will be different for each month. By referring to this table, a person can be aware of future payments and the outstanding loan amount.

How to Calculate Interest on the Amortization Table?

The interest portion that is reflected in the amortization table is calculated by multiplying the opening outstanding principal by the monthly rate of interest. The monthly rate of interest can be calculated by dividing the yearly rate of interest by twelve. The outstanding principal is always mentioned in the amortization schedule. As the outstanding principal keeps on decreasing with each monthly repayment, the interest portion will also keep on decreasing.

Example of the Amortization Table

The details of the loan as follows:

• Loan Amount = $1,00,000
• Interest Rate = 12% P.A.
• Tenure = 24 Months
• Loan Date = 01.01.2019

The amortization for the above loans looks like below.

The amount of EMI payable per month is $4,614 and the tenure of the loan is 24 months.

What does the Amortization Table Show?

An table as presented above shows the following particulars.

• Installment Number: It reflects the serial wise number of installments. The last installment number represents the tenure of the loan.
• Payment Date: It means the date on which the payments are due each month.
• Opening Balance: It reflects the opening balance of the outstanding principal of the loan.
• EMI: It means the fixed amount of payment that is to be done each month.
• Principal: In this column, the principal amount out of the EMI amount due is being reflected.
• Interest: This represents the interest portion out of the EMI amount due.
• Closing Balance: Closing balance means the closing balance of the principal amount of loan after the repayment of the current month.
• Cumulative Interest: It reflects the total amount of interest that has been incurred on the loan at each installment level.

How to Use the Amortization Table?

This table is used to calculate certain factors such as EMI amount and the total interest cost that will be involved in forgiven loan amount at the given rate of interest for a fixed tenure. The table will give exact details of the same and the borrower can ascertain the effect of the same on his financials. The same is also helpful in keeping track of the upcoming loan repayments.

Amortization Table vs Payment Schedule

The amortization table and payment schedule may sound similar terms however, they are different from each other.

The main difference is that the amortization table contains the breakup of the principal and interest portion, along with the total of the same. However, a payment schedule will only reflect the total payment and does not contain the breakup of principal and interest amounts. Thus, while the amortization table is a detailed table of loan repayment, the payment schedule is as good as a calendar showing the due dates for the repayment of the loan at periodic intervals.

Conclusion

An amortization table is useful to the borrowers as well as the lenders. The same reflects the detailed data of the repayments of the loan, the interest involved and the tenure of the said loan. It also works as a reminder for loan repayments which is an added benefit.

Recommended Articles

This has been a guide to Amortization Table and its definition. Here we discuss characteristics, working and use of amortization table along with an example and its differences from payment schedule. You can learn more about financing from the following articles –

• What is Amortization of Bond Premium?
• Mortgage Amortization Schedule
• Debt Consolidation
• Prepayment Penalty Meaning
• Present Value vs Future Value