As I mentioned before, the interest each period will change as the balance of the loan changes. In every row, our payment will be $3,042.19.Īs with our calculations, the next thing we need to work on is interest. Ok, so how do we fill in the rest? One thing is easy to fill in, which is the “Payment” column, since the payment will not change. Now that we have all our values for the first line, we can begin to fill in our table. For our first period, the previous balance of the loan is the total balance. What you pay towards interest does not affect the balance of the loan. The balance of the loan after a period’s payment is the previous balance of the loan less the portion of the payment made towards principal.
The last part, which I haven’t discussed yet, is how the balance changes. We are almost done with our first period’s calculations. Next, we need to calculate the portion paid towards the principal, which is just the total payment less interest. The portion paid towards interest will change each period, since the balance of the loan will change each period, but I will dig into that in just a bit. The portion of the payment paid towards interest is $500 in the first period. We will use our formula above, and the work is shown below for the first month: Now, we need to calculate how much of that is paid towards interest each month. So, each month, your total payment will be $3,042.19. We will use the formula above, where the present value of the loan is $100,000, the interest rate per period is 0.06/12 since we are working with monthly payments, and our number of payments is 36, which is twelve payments per year for three years.
We can start with each month’s “Payment” calculation. You could add other columns, like cumulative principal payments made, and cumulative interest paid, but this is up to you.Īlright, now we have to actually fill in the table. Here, we can see how much we pay towards principal and interest each period, the total payment each period, and the remaining balance.
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