Simple Interest Amortization Schedule

A simple interest amortization schedule is useful when calculating simple interest on large loans, such as mortgage and auto loans. An amortization schedule is a chart or table that displays the principal of the loan, the amount of each payment, interest paid, cumulative interest, and the remaining balance.

Simple Interest Amortization Schedule Benefits

Amortization schedules offer many benefits to borrowers. They enable you to compare new quotes to an existing loan when refinancing, which can help you select the right mortgage for your needs. Amortization schedules are useful when calculating expected monthly payments for different loan amounts and interest rates, and they show how much interest you will pay over the life of your loan. These charts calculate and show how your balance, principal, and cumulative interest change over time.

Drawbacks to Amortized Loans

Typically, most of each payment made during the first 18 years of an amortized loan term go toward the interest, with little principal being paid off. As the loan matures, increasing sums go toward the principal balance. The interest rate of the loan determines how much of each payment is allocated toward the principal. This means that after 10 years of mortgage payments, you may owe nearly as much principal as you did at the start of the loan term. Moreover, refinancing an amortized loan causes the schedule to restart, thereby substantially increasing the amount spent on interest.

Payments on an amortized loan remain the same throughout the length of the term, regardless of outstanding principal. Making extra payments reduces the term of the loan and decreases the total interest charged by the lender, but it does not reduce your monthly payments.

Creating Your Amortization Schedule

You must calculate interest on a simple interest mortgage loan daily, instead of monthly. The figures will remain accurate for the life of your loan, provided you do nothing to alter them. Amortization schedules are not an efficient tool for tracking variable rate mortgages, but they work very well for fixed interest rates.

Using the total loan amount, the number of payments, and the interest rate on your loan, you can determine how much you are currently paying toward interest, how much of your principal balance remains, and you can adjust your payment amounts to shorten the term of your loan.

If your interest rate is five percent, you divide 0.05 by 365 to obtain the daily rate. You then multiply this number by the balance each day to determine the daily interest amount.

• A = payment Amount, per period
• P = Principal
• i = periodic Interest rate
• n = total Number of payments due before loan is paid in full

Virtual Amortization Spreadsheets

Increasing your payment amount, or making extra payments throughout the year, will decrease your outstanding principal and reduce the amount of interest you will pay over time. However, any time you alter from your payment plan by paying extra or skipping a payment, you change the amortization schedule.

It is extremely difficult to create and maintain hard copy simple amortization schedules. Even if you successfully calculate and record each day's interest rate for the length of your term, the entire schedule would require adjusting if you make a single payment early or late. Because of this, nearly everyone relies on virtual spreadsheets to calculate and adjust their simple interest amortization schedule.

Vertex42 offers a free, downloadable amortization schedule for Excel. Follow the directions carefully, and plug in your numbers. To ensure accuracy, enter each payment according to the posting date, not the day you send payment to the lender.

You can obtain a copy of your amortization table by contacting your lender. In most states, law requires mortgage lenders to supply borrowers with a copy of their amortization schedule before document signing.

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