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How to Calculate a Mortgage Amortization Table

how to calculate interest only mortgage payments

Copyright 2009 by Morris Rosenthal

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Amortization Formula and Spreadsheet for Schedule A Tax Deduction

I've written quite a bit about about how the interest payments on your mortgage can be deducted from your income tax, but only if they (and your other deductions) come to more than the standard deduction. In all cases, due to the existence of the standard deduction, you never get full value in exchange for the interest you are paying, just small fraction, depending on your tax bracket, etc. It's a deduction rather than a credit, though the government is talking about making it a better deduction (ie, not reducing it by the standard deduction in practice).

The formula for calculation of amortization tables is an iterative process, calculating the mortgage payment for a month, reducing the principal by a

month's payment, calculating the interest paid that month. For example, using the fifteen year mortgage amount from my page on calculating interest to keep it simple, $100,000 at 5%, we get a monthly payment of $790.79 on a calculator with too many significant digits:-) So after one month, the outstanding balance is:

($100,000 - $790.79) + interest for the month

where the interest rate per month is 5% divided by 12 months, or .05/12 = 0.0041667, and the previous month principal is $100,000

so the interest for the month is $100,000 x .0041667 = $416.67

So, for the first month, the amount of principal paid on the loan is the monthly payment minus the interest that month or

$790.79 - $416.67 = $374.12

And the remaining principal amount is $100,000 - $374.12 = $99,625.88

Category: Bank

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