Straight Line Amortization Chart

A straight line amortization chart is a useful tool to analyze your mortgage loan payments. Be sure the chart you use is customized to reflect the actual elements of your loan.

Amortization charts make loan payment analysis easy.

Amortization is when the total amount owed is divided over a specific period of time. The term amortization is usually used when referring to a loan. The total cost of the loan (the amount of money borrowed plus the total interest to be charged on the loan) is "amortized" into a set number of payments.

Mortgage loans are typically amortized over long periods of time such as 20-year loans or 30-year loans due to the large amount of money borrowed. With a fixed rate loan, each monthly payment is the same and includes some portion of the loan principal (the total amount borrowed) and interest. This is called "straight line amortization."

The term "straight line amortization" refers to having an equal payment each month. Each month a portion of the loan payment is allocated to the principal of the loan and a portion is allocated to interest. These portions change throughout the term of the loan, but the total payment always remains the same.

A straight line amortization chart is a helpful way to see how the allocated amounts for the principal and interest change each month. The chart can either be formatted as a table or as a graphic chart.

• Table-format chart - tends to be easier to read since the actual amounts of principal and interest are listed in the table.
• Graphic chart - requires the reader to find a specific month on the chart's line and then find the corresponding amounts of principal and interest by reading the X and Y axes on the chart.

All mortgage amortization charts are developed based on three pieces of information:

• Loan amount (the "principal") – the original amount of the loan.
• Loan interest rate – the interest rate charged for the loan. It is not the Annual Percentage Rate (APR) which would also reflect any loan fees.
• Loan term – the number of months or years until the loan is totally repaid.

For example, assume you have a 30-year fixed rate mortgage loan for $100,000 with an interest rate of 6 percent. As shown in the chart below, with straight line amortization, the payment would remain constant each month at $599.55. Each month the amount of the payment allocated to the interest would decrease, and there would be a corresponding increase in the amount of the payment allocated to the loan principal.

Assumptions:

• Loan Amount (the "Principal") - $100,000
• Loan Interest Rate - 6 percent

It is possible to create a straight line amortization chart using a spreadsheet computer program. The basic design of most amortization charts usually include the following column headings:

• Month
• Payment
• Principal
• Interest
• Balance

Each cell on the chart needs to be formatted with the calculation code to reflect the appropriate changes in the allocation of the monthly payment. This is time-consuming and can be difficult to complete.

An easier way to create you own chart is to use one of the pre-designed amortization schedules available online such as those provided by money-zine.com. These easy-to-customize charts are created as Excel spreadsheets. They are available for use at no cost in a variety of loan terms including:

• 10-year
• 15-year
• 20-year
• 30-year

For example, the money-zine.com pre-designed 30-year amortization schedule already has the cell calculation codes built right into each cell on the spreadsheet. It is easy to customize the chart to your needs. To develop the basic chart, all you need to do is:

• Enter the amount of the loan
• Enter the interest rate

This basic chart also provides the capability to show the effect of adding extra funds to the payment. For example, if you wanted to add an additional $50 to your payment each month, the payment could be added to the chart in the appropriate month. The chart would automatically reflect the added payment in the loan principal and reflect how much earlier the loan could be paid off.

Easy to use mortgage amortization calculators are also available on the Internet. The calculator is a simple way for borrowers to quickly evaluate their interest savings and see how much earlier they can pay off their mortgage loan by paying extra mortgage payments or by adding a little extra to their payment each month.

The calculator is also a helpful tool to evaluate a new loan. By entering various interest rates and loan terms, the calculator can quickly determine the amount of the monthly payment.

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