Folks,
I will briefly explain the loan payment schedule since I just secured a mortgage and have learned a few things, not to forget my economics class
. Although I believe this post can be used elsewhere.
When you take a loan, you initially pay more interest because you have more money borrowed from bank. As you start paying it back, you interest reduces too. Bank splits it in equal amounts over the period of loan so you don't have to deal with high interest payments earlier. It's called an annuity where the total of payments over a number of years totals up to the future value of the loan amount given today (adjusted by the inflation or the market interest rate, whatever you may visualize it as). In other words,these three payments to the bank have the same effect (taken from example below, assuming constant 8% int. rate for next 10 years).
1. you pay back the bank 100,000 today.
2. you pay back the bank 1,213 every month. bank would receive this if it kept 100,000 in a monthly scheme that exhausts it in 10 years (annuity).
3. you pay back the bank 215,900 after 10 years. (amount after 10 years at a cumulative interest of 8% per year). bank would have gotten it if it kept 100,000 in a saving account.
EDIT: This is the value of time concept that Amitoj mentioned, directly dictated by current market rate. Usually referred as NPV (net present value) calculations.
The important thing to keep in mind here is banks calculate the interest at the end of a month. Which means if your payment is 15K pm, and you make a 30K payment, the balance directly goes towards your principal, and next month's interest will be calculated in the new reduced principal. that is the only way to improve on your payments. prepayment penalties are something that negotiated before taking a loan in order to be able to do this.
here is a typical loan schedule for 10 years. For 30 years your principal pmt will drop to peanuts. you can use
Mortgage/Loan Calculator with Amortization Schedule to create a simple chart like this. your actual amounts may differ because of charges, fees etc.
Pmt Principal Interest Cum Prin Cum Int Prin Bal
1 546.61 666.67 546.61 666.67 99453.39
2 550.26 663.02 1096.87 1329.69 98903.13
3 553.93 659.35 1650.80 1989.04 98349.20
4 557.62 655.66 2208.42 2644.70 97791.58
5 561.34 651.94 2769.76 3296.64 97230.24
6 565.08 648.20 3334.84 3944.84 96665.16
7 568.85 644.43 3903.69 4589.27 96096.31
8 572.64 640.64 4476.33 5229.91 95523.67
9 576.46 636.82 5052.79 5866.73 94947.21
10 580.30 632.98 5633.09 6499.71 94366.91
11 584.17 629.11 6217.26 7128.82 93782.74
12 588.06 625.22 6805.32 7754.04 93194.68
13 591.98 621.30 7397.30 8375.34 92602.70
14 595.93 617.35 7993.23 8992.69 92006.77
15 599.90 613.38 8593.13 9606.07 91406.87
16 603.90 609.38 9197.03 10215.45 90802.97
17 607.93 605.35 9804.96 10820.80 90195.04
18 611.98 601.30 10416.94 11422.10 89583.06
19 616.06 597.22 11033.00 12019.32 88967.00
20 620.17 593.11 11653.17 12612.43 88346.83
21 624.30 588.98 12277.47 13201.41 87722.53
22 628.46 584.82 12905.93 13786.23 87094.07
23 632.65 580.63 13538.58 14366.86 86461.42
24 636.87 576.41 14175.45 14943.27 85824.55
25 641.12 572.16 14816.57 15515.43 85183.43
26 645.39 567.89 15461.96 16083.32 84538.04
27 649.69 563.59 16111.65 16646.91 83888.35
28 654.02 559.26 16765.67 17206.17 83234.33
29 658.38 554.90 17424.05 17761.07 82575.95
30 662.77 550.51 18086.82 18311.58 81913.18
31 667.19 546.09 18754.01 18857.67 81245.99
32 671.64 541.64 19425.65 19399.31 80574.35
33 676.12 537.16 20101.77 19936.47 79898.23
34 680.63 532.65 20782.40 20469.12 79217.60
35 685.16 528.12 21467.56 20997.24 78532.44
36 689.73 523.55 22157.29 21520.79 77842.71
37 694.33 518.95 22851.62 22039.74 77148.38
38 698.96 514.32 23550.58 22554.06 76449.42
39 703.62 509.66 24254.20 23063.72 75745.80
40 708.31 504.97 24962.51 23568.69 75037.49
41 713.03 500.25 25675.54 24068.94 74324.46
42 717.78 495.50 26393.32 24564.44 73606.68
43 722.57 490.71 27115.89 25055.15 72884.11
44 727.39 485.89 27843.28 25541.04 72156.72
45 732.24 481.04 28575.52 26022.08 71424.48
46 737.12 476.16 29312.64 26498.24 70687.36
47 742.03 471.25 30054.67 26969.49 69945.33
48 746.98 466.30 30801.65 27435.79 69198.35
49 751.96 461.32 31553.61 27897.11 68446.39
50 756.97 456.31 32310.58 28353.42 67689.42
51 762.02 451.26 33072.60 28804.68 66927.40
52 767.10 446.18 33839.70 29250.86 66160.30
53 772.21 441.07 34611.91 29691.93 65388.09
54 777.36 435.92 35389.27 30127.85 64610.73
55 782.54 430.74 36171.81 30558.59 63828.19
56 787.76 425.52 36959.57 30984.11 63040.43
57 793.01 420.27 37752.58 31404.38 62247.42
58 798.30 414.98 38550.88 31819.36 61449.12
59 803.62 409.66 39354.50 32229.02 60645.50
60 808.98 404.30 40163.48 32633.32 59836.52
61 814.37 398.91 40977.85 33032.23 59022.15
62 819.80 393.48 41797.65 33425.71 58202.35
63 825.26 388.02 42622.91 33813.73 57377.09
64 830.77 382.51 43453.68 34196.24 56546.32
65 836.30 376.98 44289.98 34573.22 55710.02
66 841.88 371.40 45131.86 34944.62 54868.14
67 847.49 365.79 45979.35 35310.41 54020.65
68 853.14 360.14 46832.49 35670.55 53167.51
69 858.83 354.45 47691.32 36025.00 52308.68
70 864.56 348.72 48555.88 36373.72 51444.12
71 870.32 342.96 49426.20 36716.68 50573.80
72 876.12 337.16 50302.32 37053.84 49697.68
73 881.96 331.32 51184.28 37385.16 48815.72
74 887.84 325.44 52072.12 37710.60 47927.88
75 893.76 319.52 52965.88 38030.12 47034.12
76 899.72 313.56 53865.60 38343.68 46134.40
77 905.72 307.56 54771.32 38651.24 45228.68
78 911.76 301.52 55683.08 38952.76 44316.92
79 917.83 295.45 56600.91 39248.21 43399.09
80 923.95 289.33 57524.86 39537.54 42475.14
81 930.11 283.17 58454.97 39820.71 41545.03
82 936.31 276.97 59391.28 40097.68 40608.72
83 942.56 270.72 60333.84 40368.40 39666.16
84 948.84 264.44 61282.68 40632.84 38717.32
85 955.16 258.12 62237.84 40890.96 37762.16
86 961.53 251.75 63199.37 41142.71 36800.63
87 967.94 245.34 64167.31 41388.05 35832.69
88 974.40 238.88 65141.71 41626.93 34858.29
89 980.89 232.39 66122.60 41859.32 33877.40
90 987.43 225.85 67110.03 42085.17 32889.97
91 994.01 219.27 68104.04 42304.44 31895.96
92 1000.64 212.64 69104.68 42517.08 30895.32
93 1007.31 205.97 70111.99 42723.05 29888.01
94 1014.03 199.25 71126.02 42922.30 28873.98
95 1020.79 192.49 72146.81 43114.79 27853.19
96 1027.59 185.69 73174.40 43300.48 26825.60
97 1034.44 178.84 74208.84 43479.32 25791.16
98 1041.34 171.94 75250.18 43651.26 24749.82
99 1048.28 165.00 76298.46 43816.26 23701.54
100 1055.27 158.01 77353.73 43974.27 22646.27
101 1062.30 150.98 78416.03 44125.25 21583.97
102 1069.39 143.89 79485.42 44269.14 20514.58
103 1076.52 136.76 80561.94 44405.90 19438.06
104 1083.69 129.59 81645.63 44535.49 18354.37
105 1090.92 122.36 82736.55 44657.85 17263.45
106 1098.19 115.09 83834.74 44772.94 16165.26
107 1105.51 107.77 84940.25 44880.71 15059.75
108 1112.88 100.40 86053.13 44981.11 13946.87
109 1120.30 92.98 87173.43 45074.09 12826.57
110 1127.77 85.51 88301.20 45159.60 11698.80
111 1135.29 77.99 89436.49 45237.59 10563.51
112 1142.86 70.42 90579.35 45308.01 9420.65
113 1150.48 62.80 91729.83 45370.81 8270.17
114 1158.15 55.13 92887.98 45425.94 7112.02
115 1165.87 47.41 94053.85 45473.35 5946.15
116 1173.64 39.64 95227.49 45512.99 4772.51
117 1181.46 31.82 96408.95 45544.81 3591.05
118 1189.34 23.94 97598.29 45568.75 2401.71
119 1197.27 16.01 98795.56 45584.76 1204.44
120 *1204.44 8.03 100000.00 45592.79 0.00