How to Read an Amortization Schedule — A Step-by-Step Guide

To read an amortization schedule, follow one row at a time: each row takes the balance left after the previous payment, charges one month of interest on it, treats the rest of the fixed payment as principal, and shows the new balance. The five columns are payment number, interest, principal, payment (the same every row) and remaining balance. This guide reads a real schedule line by line using a $200,000 loan at 7% over 30 years, whose payment is $1,330.60.

Read one row before reading the table

Take payment 1. Interest = balance x annual rate / 12 = $200,000 x 0.07 / 12 = $1,166.67. Principal = payment - interest = $1,330.60 - $1,166.67 = $163.94 (the difference is rounding). New balance = $200,000 - $163.94 = $199,836.06. Payment 2 starts from that balance: $199,836.06 x 0.07 / 12 = $1,165.71 of interest and $164.89 of principal. If a row on your own schedule does not reproduce this way, the lender is using a different payment date convention, fees or rounding, and that is worth asking about.

The schedule at selected payments

Assumptions: $200,000, 7% annual rate, 360 monthly payments, payment $1,330.60 (unrounded figures in the calculation, displayed to the cent).

Three numbers to find

1. Crossover payment. The first row where principal exceeds interest is payment 242 (year 20, month 2): interest $664.64, principal $665.97. Until then, interest takes the larger share, and in payment 1 it takes 87.7% of the money. For a 15-year loan with the same amount and rate (payment $1,797.66) the crossover comes at payment 62.
2. Half-way is not half the balance. After 180 payments, half the term, the balance is still $148,037.73, 74% of the original loan. The balance only drops below $100,000 at payment 261, which is 72.5% of the way through the term.
3. Total interest. Cumulative interest ends at $279,017.80, about 1.4 times the amount borrowed. Interest in the first 12 payments alone is $13,935.64, against $2,031.62 of principal.

Year-end view

Lenders often show an annual summary instead. It is easier to see principal build up:

What extra principal does to the rows

An extra payment shows up in the principal column and lowers every later balance, which lowers every later interest charge. If you added $200 in payment 1, principal for that row would be $363.94 instead of $163.94, and the balance would be $199,636.06. Payment 2 interest would then be $1,164.54 instead of $1,165.71. Small numbers, but the saving repeats every month for the rest of the loan. The article on extra payments quantifies this for a different loan.

Questions the schedule answers

• What do I owe if I pay off now? The balance column after your most recent payment, plus any interest accrued since and any lender payoff fees. After 60 payments on this loan that balance is $188,263.18.
• How much of what I have paid was interest? After five years the borrower has paid about $79,836 in total (60 x $1,330.60), of which $68,099.48 (85.3%) was interest and $11,736.82 (14.7%) was principal.
• How much would one extra payment save? Find the row, then compare. An extra $5,000 applied with payment 60 removes $5,000 from the balance on that row, so every later month starts from a lower number and accrues less interest.
• When will principal start doing the heavy lifting? Look for the crossover row described above, then at the balance column, not the principal column: the balance is the number that actually falls and the one your next interest charge is based on.

Assumptions for every figure in this guide: fixed 7.00% annual rate, interest charged monthly at one-twelfth of the annual rate on the balance after the previous payment, payments at the end of each month, unrounded payment carried through the schedule and displayed to the cent. Real lenders round each payment, so your own schedule can differ by a few cents per row.

Common mistakes when reading a schedule

• Treating the principal column as equity in the property. Equity is the market value minus the balance, and value can move either way.
• Comparing schedules with different payment dates or day-count conventions. Lenders that accrue daily interest can show slightly different rows.
• Forgetting that the payment on your bill may include escrow for tax and insurance, which never appears in an interest-and-principal schedule.
• Reading the last row as a typical payment. Payment 360 here has just $7.72 of interest, and rounding adjusts the final payment by a few cents.
• Assuming the schedule is fixed. It applies to a fixed rate; adjustable-rate loans are recalculated after each rate change.