Amortization Schedule

Have you ever wondered how your mortgage company calculates what portion of your monthly payment should go to paying off the interest and how much should be applied toward the loan principal? The lender does it by using something called an amortization schedule, which is calculated for the specifics of each mortgage loan. It is a chart that divides monthly payments to show exactly how much interest and how much principal you pay.

It is useful information, according to Orlando accountant Sandy Wilkening, because it can help you figure for tax purposes at years end how much interest you've paid - before the lender's required notice arrives. Or it can help if you are thinking about sending in an extra principal payment every month in order to shorten the term of your loan. Some mortgage lenders will provide borrowers with an amortization chart at the closing, but only if the borrowers request them, said Mike Ramsey, president of Qualifax Mortgage in Orlando. Most lenders, he added, aren't set up to provide borrowers with such a chart after the closing. However, it is fairly easy to calculate an amortization table on your own.

Making the chart To start off, you need to know three facts: - Your current monthly principal-and-interest payment. - The current outstanding balance. - The interest rate.

You can find out all three by calling your lender's loan servicing department. Make sure you have your loan account number handy; the operators will need that to call up your file. As soon as you have those numbers, you're ready to begin. A pocket calculator will make the mathematics easier.

Designing the chart Use a sheet of graph paper or take a plain sheet of paper and make five columns. At the head of the first column, write Month. At the head of the second, write Monthly Payment; third, Interest; fourth, Principal; and fifth, Balance. At the top of the Balance column, write the current balance of your loan. Under the Month column, enter the current month. Under the Monthly Payment column, enter your payment.

Doing the math First, you need to know the "interest factor" to use. To find that, divide your interest rate by 12 (for the 12 months of the year). For example, the interest factor for 10 percent is .0083; for 10.5, it is .00875. For convenient reference, write that at the top of the chart.

Here's an example of how to do an amortization chart. Assume that it is a $100,000, 30-year, fixed-rate loan borrowed at 10 percent simple interest.