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An amortization table usually works as follows: Your loan amount is $150,000. your interest rate is 7%, and your term is 30 years. The table will show you that your monthly payment will be $997. It may also tell you that your monthly interest is $581, your interest at the end of the first year will be $9,584, and that by the time your loan is repaid you will have paid $209,263. Other tables will even show you the amount of principal you are paying versus the amount of interest. In the first month with this loan you would pay $122 of your monthly payment to principal but the rest of the $997 towards interest. By the end of the loan, $992 would be paid to the principal while only $5 would be towards interest.
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An excellent use of an amortization table is to compare a 15 year term with a 30 year term. The $150,000 loan 30 year monthly payment would be increased $351 a month, making your monthly payment $1,348, but your interest paid would be more than cut in half, dropping from $209,263 to $92,683. This table would show that it would be worthwhile to take on a 15 year term if you could stand to pay $351 more a month. If you are unable to change to a 15 year term, adding an extra payment yearly can decrease the total amount of interest paid by just under $50,000. If you are planning to make extra payments be sure to consult your lender about prepayment fees to ensure that you will not be penalized for repaying your loan early.
Amortization tables enable you to enter in your information in order to help you get a clear picture of your repayment schedule. You can use the table to play with the terms in order to understand how flexible you want to be when you close your loan. Generally, when using an amortization table, you put in your loan amount, the interest rate, and the term of the loan. After you enter this information, the table will calculate your monthly payment. Many tables will also give you the amount of interest you will pay monthly, yearly and in total of the life of the loan.
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