Putting together a notes payable amortization schedule so that we can break out loan payments between interest and principle. Many loans we are familiar with are installment loans which have equal payments to repay the loan. To make the loan payments equal the interest and principal reduction will differ from payment to payment, which can be confusing. In other words, each payment will have an interest expense component and a principal reduction component but the allocation between the two will change with each payment. The interest portion will go down with each payment and the principal portion will increase. We will start with a 100,000 loan 9% interest with 36 even monthly payments. It is common for a loan to include these terms but not provide an amortization schedule. Using this loan information we will create the amortization schedule. Whether we do the amortization calculation in Excel or by hand, setting up the column is often the most difficult part. We will include the columns of Payment, Interest, Principal Reduction, and Principal. The payment will be the same each period. Interest is calculated as principle times the interest rate divided by 12. The principal reduction is the payment less the interest portion and the remaining principal is the prior period principal less the current period deduction.
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