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Amortization Schedule

The breakdown of loan payments into principal and interest components over the loan term.

01 / Formula

Formula

Interest Payment = Remaining Balance × Monthly Rate | Principal Payment = Total Payment − Interest Payment

02 / Variables

Variables

Remaining Balance: Outstanding principal at period start
Monthly Rate: Annual rate ÷ 12
Total Payment: Fixed loan payment

03 / Worked Example

Worked Example

Scenario: $200,000 loan, 5% rate, 20-year term: early payments are heavily interest; later payments mostly principal.

Steps:

Calculate first month interest: $200,000 × (5% ÷ 12) = $833.33
Subtract from payment: payment − interest = principal reduction
Reduce balance by principal payment
Repeat for each month

04 / When to Use

When to Use This Formula

Understand how loan payments are split
Calculate total interest over loan life
Plan early payoff strategy

05 / Limitations

Limitations & Assumptions

Assumes no additional payments or rate changes
Does not include escrow or insurance
Schedule changes if you make extra payments

06 / Questions

Common Questions

Why is most of the early payment interest?

Interest is calculated on the remaining balance. Since balance is highest early, interest is highest; it declines as principal reduces.

More on this topic

Mortgages and home financing

Reference note: This is an educational mathematical reference. The formula's applicability depends on assumptions, market conditions, and use case. Always verify results independently and consult domain experts for decisions.