An amortization schedule is a table that details the periodic payments made on a loan over its lifetime. Each payment is broken down into two components: the principal and the interest. For most standard loans (like mortgages, auto loans, and personal loans), payments are structured in such a way that you pay a fixed amount each period, but the proportion of interest and principal within that payment changes over time. This is known as an amortizing loan.
How the Calculation Works
The calculation of an amortization schedule involves several key steps and formulas:
Calculate the Monthly Interest Rate: The annual interest rate needs to be converted into a monthly rate.
Monthly Interest Rate = Annual Interest Rate / 12 / 100
Calculate the Monthly Payment: This is the fixed amount paid each month. The formula for the monthly payment (M) is derived from the loan principal (P), the monthly interest rate (r), and the total number of payments (n):
M = P [ r(1 + r)^n ] / [ (1 + r)^n – 1]
If the interest rate is 0%, the monthly payment is simply:
M = P / n
Generate the Schedule Row by Row: For each payment period (from 1 to n):
Interest Paid: Calculated on the outstanding balance from the previous period.
Interest Paid = Outstanding Balance * Monthly Interest Rate
Principal Paid: The portion of the monthly payment that reduces the loan principal.
Principal Paid = Monthly Payment - Interest Paid
Ending Balance: The remaining amount owed after the payment.
Ending Balance = Outstanding Balance - Principal Paid
Next Period's Beginning Balance: The ending balance of the current period becomes the beginning balance for the next.
The final payment is often slightly adjusted to account for rounding errors throughout the schedule, ensuring the ending balance is exactly $0.00.
Why Use an Amortization Schedule?
Understanding your loan's amortization schedule offers several benefits:
Transparency: See exactly how much of each payment goes towards interest and principal.
Financial Planning: Predict future payments and the total interest paid over the life of the loan.
Accelerated Payments: Identify opportunities to make extra principal payments to reduce the loan term and total interest paid. For example, if you pay an extra $100 towards principal in month 12, you can see how much faster you'll pay off the loan and how much interest you save.
Tax Deductions: In some cases, the interest paid on certain loans (like mortgages) can be tax-deductible. An amortization schedule helps track this.
Example Scenario
Let's consider a loan with the following details:
Loan Amount: $20,000
Annual Interest Rate: 6%
Loan Term: 3 years (36 months)
Using our calculator, you would see the monthly payment, the total interest paid over the life of the loan, and a detailed breakdown for each of the 36 payments.
var today = new Date();
function generateSchedule() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermMonths = parseInt(document.getElementById("loanTermMonths").value);
var resultSummaryDiv = document.getElementById("result-summary");
var scheduleBody = document.getElementById("schedule-body");
// Clear previous results
resultSummaryDiv.innerHTML = "";
scheduleBody.innerHTML = "";
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid Loan Amount greater than zero.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid Annual Interest Rate (0% or greater).");
return;
}
if (isNaN(loanTermMonths) || loanTermMonths <= 0) {
alert("Please enter a valid Loan Term in Months (1 or greater).");
return;
}
var monthlyInterestRate = annualInterestRate / 100 / 12;
var monthlyPayment = 0;
var totalInterestPaid = 0;
var totalPrincipalPaid = 0;
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / loanTermMonths;
} else {
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, loanTermMonths)) / (Math.pow(1 + monthlyInterestRate, loanTermMonths) – 1);
}
var currentBalance = loanAmount;
var paymentDate = new Date(today); // Start date for payments
for (var i = 1; i 0 ? currentBalance : 0); // Ensure ending balance is not negative due to floating point issues
// Advance date for next payment
paymentDate.setMonth(paymentDate.getMonth() + 1);
// Ensure balance doesn't go below zero due to floating point
if (currentBalance < 0.01 && i < loanTermMonths) {
currentBalance = 0;
}
}
// Handle the edge case where the last payment might result in a slightly negative balance due to float precision
// If the last row's ending balance is slightly negative, reset it to 0.
var lastRow = scheduleBody.rows[scheduleBody.rows.length – 1];
if (lastRow) {
var endingBalanceCell = lastRow.cells[6];
var endingBalanceValue = parseFloat(endingBalanceCell.textContent.replace(/[^0-9.-]+/g,""));
if (endingBalanceValue < 0) {
endingBalanceCell.textContent = formatCurrency(0);
}
}
resultSummaryDiv.innerHTML = "
Total Interest Paid: " + formatCurrency(totalInterestPaid) + "
" +
"
Total Principal Paid: " + formatCurrency(totalPrincipalPaid) + "
" +
"
Total Paid: " + formatCurrency(totalPrincipalPaid + totalInterestPaid) + "