Finance · 3 min read
How to Read an Amortisation Schedule
Most people see an amortisation table once, at signing, and never open it again. It is the most useful document in the loan file.
An amortisation schedule has four columns: payment number, interest, principal, and remaining balance. The instalment total stays fixed. Everything else moves, and the way it moves answers most of the questions people have about their loan.
How a single row is built
Each row follows the same three steps:
- Interest = current balance × monthly rate
- Principal = EMI − interest
- New balance = current balance − principal
That is it. The complexity is not in the calculation, it is in the fact that you have to do it a few hundred times, each row depending on the last.
On a $200,000 loan at 6% over 25 years, the EMI is $1,288.60. Month one:
- Interest = 200,000 × 0.005 = $1,000.00
- Principal = 1,288.60 − 1,000.00 = $288.60
- Balance = $199,711.40
You paid $1,288.60 and reduced your debt by $288.60. That ratio (78% interest in the first month) is what surprises people.
The shape of the whole table
| Month | Interest | Principal | Balance |
|---|---|---|---|
| 1 | $1,000.00 | $288.60 | $199,711 |
| 60 | $900.61 | $387.99 | $179,735 |
| 120 | $761.24 | $527.36 | $151,720 |
| 163 | $645.11 | $643.49 | $128,378 |
| 180 | $590.16 | $698.44 | $117,334 |
| 240 | $348.71 | $939.89 | $68,802 |
| 300 | $6.41 | $1,282.19 | $0 |
Month 163 is the crossover: the first payment where more goes to principal than to interest. It arrives 54% of the way through a 300-month loan. Before that point you are mostly renting the money; after it, you are mostly buying it.
Total interest over the full term: $186,580 on a $200,000 loan. You very nearly pay for the house twice.
Four things the schedule tells you
1. Whether refinancing is worth it
Refinancing resets you to month one of a new schedule: back to the interest-heavy end. A lower rate on a fresh 25-year term can cost more in total than staying put on a higher rate with 12 years left, even though the monthly payment falls.
The check that matters: compare total remaining interest under both schedules, not the monthly payment. Take your current balance and remaining months, compute the interest still to come, then do the same for the proposed loan including fees. If you refinance, try to keep the remaining term rather than extending it.
2. What a prepayment is actually worth
A lump sum applied to principal removes every future interest charge that would have accrued on it. On the loan above, $10,000 paid in month 12 saves around $25,600 in interest and finishes the loan roughly 26 months early. The same $10,000 in month 200 saves about $3,400.
The rule of thumb: a prepayment is worth roughly the interest rate compounded over the remaining term. Early is worth several times late.
3. The true cost of a longer tenure
Same $200,000 at 6%:
| Term | Monthly | Total interest |
|---|---|---|
| 15 years | $1,687.71 | $103,788 |
| 20 years | $1,432.86 | $143,886 |
| 25 years | $1,288.60 | $186,580 |
| 30 years | $1,199.10 | $231,676 |
Going from 25 to 30 years saves $89.50 a month and costs $45,096 in extra interest. That is $504 of interest for every $1 of monthly relief. Sometimes that trade is the right one. Cash flow has value, and a loan you can service beats one you cannot. But it should be a decision, not a default.
4. Where you actually stand
The balance column is the only honest measure of progress. Payments made tells you nothing useful; at the halfway point of a 25-year loan you have paid half the instalments and cleared about 36% of the principal.
Two variations worth knowing
Interest-only periods. Some loans begin with a phase where you pay only the interest. The balance does not move at all during it, and when the full instalment starts the remaining term is shorter, so the payment jumps, sometimes sharply. The schedule shows this as a flat balance column followed by a step change.
Floating rates. A schedule computed today assumes the rate holds. It will not. Most lenders respond to a rate rise by extending the tenure and holding the instalment, so the visible signal is absent. Your payment looks identical while the end date moves. Recompute the schedule after any benchmark change, and specifically ask what your new end date is.
Generate your own
The EMI calculator produces the full table from principal, rate and tenure. Two things worth doing with it: find your crossover month, and add a fixed extra amount to the optional monthly-prepayment field to see how many months and how much interest a steady overpayment actually saves. The difference is usually larger than any rate negotiation you are likely to win.
Common questions
When does principal overtake interest in the payment?
It depends on rate and tenure, not on loan size. As a rough guide: on a 20-year loan at 8% the crossover is around month 100; at 5% it is around month 78; at 12% it does not arrive until month 133. Higher rates push the crossover later, which is the compounding effect working against you.
Should I prepay or invest the money instead?
Compare the loan rate against the return you could earn after tax. Prepaying a 9% loan is a guaranteed 9% return, which is difficult to beat on a risk-adjusted basis. But check for prepayment penalties first, and do not prepay at the expense of an emergency fund. An illiquid house is no help in a crisis.
Why does my balance barely move in year one?
Because the payment is sized for the whole tenure but the balance is at its maximum. On a 25-year loan at 8%, roughly 87% of the first payment is interest. This is arithmetic rather than anything the lender chose, and it reverses steadily.