Recall that the PMT function is defined as: Open a new spreadsheet and enter the data as shown below: We will do this within the PMT function itself. Note that since we are making monthly payments, we will need to adjust the number of periods (NPer) and the interest rate (Rate) to monthly values. We can do this most easily by using Excel's PMT function. Our first priority is to calculate the monthly payment amount. What will be the monthly payment? How much of the first payment will be interest, and how much will be principal? The terms of the loan specify an initial principal balance (the amount borrowed) of $200,000 and an APR of 6.75%. Imagine that you are about to take out a 30-year fixed-rate mortgage. Let's start by reviewing the basics with an example loan (if you already know the basics, you can skip right to Creating an Amortization Schedule):

Calculating Interest and Principal in a Single Payment Typically, it will also show the remaining balance after each payment has been made. If extra principal payments are made, then the remaining balance will decline more quickly than the loan contract originally anticipated.Īn amortization schedule is a table that shows each loan payment and a breakdown of the amount of interest and principal.

It is the presence of the principal payment that slowly reduces the loan balance, eventually to $0. Each payment in this type of loan consists of interest and principal payments. The loan balance is fully retired after the last payment is made.

Typically, but not always, a fully amortizing loan is one that calls for equal payments ( annuity) throughout the life of the loan. Examples include home mortgages, car loans, etc. You can download the example spreadsheet or follow the example and create your own.įully amortizing loans are quite common. Spreadsheets have many advantages over financial calculators for this purpose, including flexibility, ease of use, and formatting capabilities. Almost all of this tutorial also applies to virtually all other spreadsheet programs such as Open Office Calc and Google Docs & Spreadsheets. In this tutorial we will see how to create an amortization schedule for a fixed-rate loan using Microsoft Excel and other spreadsheets (the next part shows how to handle extra principal payments and also includes a sample spreadsheet using this same example data). This is the first of a two-part tutorial on amortization schedules. Are you a student? Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? Click here to learn more

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