What is the Amortization Schedule for a Mortgage?

  • 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.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Amortization Schedule for a Mortgage (wallstreetmojo.com)

Calculation of Periodic Payments

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. The periodic payment is calculated as,

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

Explanation

Amortization Schedule Example in Excel (Mortgage)

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%.

  • Identify initially the outstanding loan amount, which is the opening balance. Then, figure out the rate of interest being charged for each period. Now determine the tenure of the loan amount, which is the remaining number of periods. Based on the available information, the amount of periodic payment can be computed with the above-given formula of the periodic payment. 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. 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 Finally, the closing balance is computed by deducting the principal repayment from the opening balance, which is, Closing balance = Opening balance – Principal repaymentThe below tabular representation is an illustration of an amortization schedule in excel (for a mortgage)

Interest paid = Outstanding loan * Rate of interest.

Closing balance = Opening balance – Principal repaymentThe below tabular representation is an illustration of an amortization schedule in excel (for a mortgage)

Therefore, as per the question,

  • Outstanding loan = $1,000,000Rate 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.

So the Periodic Payment will be–

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

So the Interest Paid will be –

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

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 Mortgage? Here we discuss how to calculate Amortization Schedule Table in Excel along with practical examples and downloadable templates. You can learn more about Excel Modeling from the following articles –

  • Loan PrincipalLoan PrincipalLoan Principal Amount refers to the amount which is actually given as the loan from the lender of the money to its borrower and it is the amount on which the interest is charged by the lender of the money from the borrower for the use of its money.read moreExplain Unsecured LoansExplain Unsecured LoansAn unsecured loan is a loan extended without the need for any collateral. It is supported by a borrower’s strong creditworthiness and economic stabilityread moreWhat is Subprime Loans?What Is Subprime Loans?Subprime loans are given to entities and individuals by the bank, usually on a rate of interest much higher than the market, which has a significant amount of risk involved regarding its repayment in the specified amount of time.read moreCalculate Loan to Value RatioCalculate Loan To Value RatioThe loan to value ratio is the value of loan to the total value of a particular asset. Banks or lenders commonly use it to determine the amount of loan already given on a specific asset or the maintained margin before issuing money to safeguard from flexibility in value.read more