Building an Amortization Table
Most loans that you will enter into for big ticket items (cars, houses, etc.) are not simple interest loans. These
loans are amortized loans. With an amortized loan, you will pay only the simple interest on the amount you
currently owe each month. As you pay off and reduce the principle, the amount of interest you pay each month
is also reduced.
We will see some aspects of how an amortized loans works by manually figuring out the loan amortization table
Assume that we are going to borrow $15,000 for 4 years (48 months) at 8.75% interest. The bank has
determined that you will make loan payments of $371.50 per month.
a) Compute interest for the first month
Use the formula I= P X R X T to calculate the interest you owe for one month
For the first month this is I = $15,000 X 0.0875 X (1/12) = $109.38
Put this amount into column C
b) Compute the amount of the payment that will reduce the principle.
The bank gets it’s interest first, so we subtract the monthly interest from your payment
$371.50 - $109.38 = $262.12 this is the amount of you payment that will reduce the principle. Enter this
amount into column D.
c) Determine the amount of principle that you still owe.
Since we used $262.12 of the first payment to reduce the principle, we still owe:
$15,000 - $262.12 = $14,737.88
This number is the ―New Balance‖ (column F) and will be carried to Column A as the beginning balance for
the next month.
4) Repeat from step 1 to fill out the entries for each successive month.
Loan Amortization Table
A B C D F
Beginning Payment Interest for this month Amount Applied to New Balance
Since this is such a tedious process (imagine working this out for all 360 payments of a $250,000 30-year
mortgage!), we use computers to do the math for us. Off to the computer lab!
Computer lab activities:
1) Start MS Internet Explorer. Most of the sites we will visit also work with Netscape, but some sites work best
with MS Internet Explorer
2) Type the following address to get to my list of links: www.madison.tec.wi.us/is/ald/dwoolpert
3) Click on the button.
4) Click on the button. This page contains all of the links to the sites mentioned below.
5) Click on the first link to www.bankrate.com. We are going to get information here on current loan rates for
a 30 year mortgage and a 48 month car loan. The national averages are displayed, but we want local rates,
so choose ―Wisconsin‖ in the pull-down menu near the center of your window and clik ―GO‖. You will now
see a table listing current Wisconsin average loan rates. Copy down the current rates for both a 30 year
mortgage and a 48 month car loan.
6) Click your ―back‖ button twice to return to
7) Click on the next link to: http://amort.netquarters.net/. This is a very handy site to quickly get a loan
amortization table for any loan.
8) Use the site to get a loan amortization table for a car loan ($15,000 - $50,000) to be amortized over 4 years.
Use the interest rate you got at www.bankrate.com. Leave the ―COMPOUNDING‖ choice set to ―Monthly‖.
Print out your table.
9) Click on the ―back‖ button to enter a new loan.
10) Use the site to get a loan amortization table for a home mortgage ($150,000 to $400,000) to be amortized
over 30 years. Use the interest rate you got at www.bankrate.com. Leave the ―COMPOUNDING‖ choice set
to ―Monthly‖. Do not Print out this table (many, many pages).
11) Compare the first few payments of each loan. What do you notice?
12) Click on the ―back‖ button to enter a new loan. Play around a bit and try adjusting the interest rate and
number of payments for one of your loans. Pay attention to the results in the ―Payment‖ and ―Total Interest‖
fields at the top of each amortization table.
13) Return to http://www.madison.tec.wi.us/is/ald/dwoolpert/links_&_projects.htm. Click on the third link,
http://www.financialpowertools.com/amortization_calculator/. This calculator gives a different, graphical
view of an amortized loan. Play around a bit using the same numbers you used in the previous calculator.
14) Return to http://www.madison.tec.wi.us/is/ald/dwoolpert/links_&_projects.htm. Scroll down and click on
the sixth link, http://www.bankrate.com/yho/rate/calc_home.asp. Here you will find a wonderful set of
calculators for many financial questions.
15) You may try any of the calculators on this page — we suggest that you try the following:
a) Under Mortgages, click on ―Calculate your payment on any loan‖ (another amortization calculator)
b) Under Autos, click on ―Which is better – a rebate or special dealer financing‖ – use the numbers from
one of the cars adds that were handed out with this assignment!
c) Under Credit Cards, click on ―The true cost of paying theminimum‖
d) Under Savings, click on ―Howto reach a savings goal – with scheduledpayments‖
e) Under Spending Power, click on ―How do I compare with top athletes‖
f) Under Moving, click on ―Compare the cost ofliving between two cities‖
Have fun with any of the other calculators that interest you.
Links to the following are available at www.madison.tec.wi.us/is/ald/dwoolpert
For current loan rates in your area:
Loan Amortization Calculators:
Just the payments, Please:
Loan vs. Lease
A Complete set of calculators for any loan or financial situation:
Good advise if you are going to borrow money for any purpose: