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Amortization Spreadsheets - Their Use Reveals the Secret to Cutting Interest Costs

Mar 20, 2008
Many times the interest portion of a mortgage, or other loan payment goes unnoticed. By using amortization spreadsheets you can easily see how much interest is being paid with each monthly payment. Also, you can see how much interest the payments are accumulating through the months and years.

Typically, an amortization spreadsheet will have five columns. The first will simply show the number of the month, the second will show interest paid that month, the third will show principal paid that month. Then, the forth column will show how much interest has been paid up until this payment and the fifth column will show how much principal has been paid altogether until the time of that corresponding payment.

Interest Vs. Principal

In the early going, the interest portion of each payment will be much larger than the principal portion. It is interesting to note that when an extra principal payment is made, it saves the payer from paying the interest on the corresponding payment. In other words, if a principal payment due on a particular payment is $100 and the interest due is $1,000, the person paying the mortgage can save $1,000 simply by paying the $100 before the payment is due.

Amortization Schedules or Spreadsheets

There are different formats, other than an amortization spreadsheet, which show how a loan is amortized.
These different formats are:
. Amortization tables
. Amortization schedules
. Amortization charts

They are all the same. In the case of amortization, charts, schedules and tables are all different words meaning the same thing.

Amortization spreadsheets are a little bit different. Typically, they are saved as an XLS file. Most times they are constructed using Microsoft Excel. Using this format the user has to use proper formulas in certain cells to build the spreadsheet.

Which Format is the Best One?

The advantage to a spreadsheet over a schedule is that in the spreadsheet, a different amount of principal paid can be entered in a "principal paid" cell and this entry will change the remainder of the spreadsheet. This is advantageous because you can see how much the remainder of a payment schedule will be altered by changing just one particular payment.

Amortization charts, schedules, and tables are static. Once they are printed out they are done. The advantage to them is they are made with either a computer program or an online Website. Since they are constructed in this manner almost instantaneously. They require no effort on the user's part. The user can simply print out and study it and see how much money he can save in interest by paying different corresponding principal payments.

The Significance of Amortization

In any event, seeing how a loan amortizes is very revealing. Once a person finds he or she can cut the wasted cost of interest greatly, he or she has learned a very important step to wealth building.

In general, paying down high interest debt is the very first step in turning around a budget of a struggling household. High interest debt of course, includes credit cards, and as anyone can easily see by studying amortization, the early payments on a mortgage.

However, until a borrower prints out an amortization table, schedule or chart, or builds an amortization spreadsheet for a particular mortgage or loan, he or she is inclined to go on wasting money unnecessarily on interest.
About the Author
Ed Lathrop is a successful real estate investor. He has developed a Website that let's you print out your own amortization table at: Amortization Schedules Free . And, Ez Calculator includes a "Pay Credit Card Debt Quick" calculator at: Free Financial Calculator
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