Amortization means reducing debt over a period of time ( for which loan is taken). The installments consist of Principal and Interest. As the time passes with regular payment of installments, the Principal decreases and at the end it is $ 0. The calculation requires a lot of math but is easy. An **amortization schedule **gives the review on details on each payment on the amortizing loan.

- First write down the Principal Amount, Interest rate and tenure of the Loan. We will try to understand with help of an example.
**Principal: $100,000; Interest rate: 6% Annual; Tenure: 360 Months (12 Years). Also know your Installment from the schedule here it is $ 599.55** - Then we calculate the monthly
**interest rate.**Just divide the Annual rate by number of years. Here it will be 6% divided by 12 that is 0.5% = 0.005 the interest part paid in first month will be $100,000 x 0.005 = $500. - Subtract the interest part from the installment to get the Principal payment in the first Month. Here it would be
**$599.55 – $500 = $99.55.** - Now you can subtract the Principal paid from initial Principal which is $100,000 – $99.55 =
**$99,900.45.** - Now just calculate the interest amount for next month by multiplying the interest rate with the remaining Principal. $99,900.45 x 0.005 =
**$499.50.**

**Now we can easily calculate the****Principal**paid in second month. It will be**$599.55 – $499.50 = $100.05**

- The reaming Principal after second installment payment will be $99,900.45 – $100.05 =
**$99,800.40.**

**Similarly all other calculations can be made.**

No. | Due date | Opening Principal | Installment | Principal Component | Interest | Closing Principal | Rate of Interest | |

1 | 05.02.2015 | 100,000 | 599.55 | 99.95 | 500 | 99,900.45 | 6%/Annum | |

2 | 05.03.2015 | 99,900.45 | 599.55 | 100.05 | 499.50 | 99,800.40 | 6%/Annum | |

3 | 05.04.2015 | |||||||

4 | 05.05.2015 | |||||||

5 | 05.06.2015 | |||||||

6 | 05.07.2015 | |||||||

7 | 05.08.2015 |

The period of the schedule will be for 360 months, and you can check each month. It is that simple

This is how an **amortization schedule** is made by the bank and you can keep a record on your computer on MS-Excel. It is very easy. The calculations here are just made to make you understand the basics behind making an Amortization schedule. Understand how are paying your loan back.** **

Image credit: pc-calculators.com ** **