An amortization calculator from Brookharbor Lenders in Charleston, West Virginia, with notes on reading a schedule, balloon payments and what an estimate leaves out.
What Is Amortization on a Term Loan, Shown Month by Month
Amortization is the way a loan is paid down over its term. Each payment covers the interest due for the month and pays off part of the balance; because the balance falls, the interest part shrinks and the principal part grows with every payment, even though the payment stays the same.
Illustration only, invented figures: on a $200,000 term loan at an invented annual rate of 8% over ten years, the payment is about $2,426.55 a month. In the first month about $1,333.33 of it is interest and about $1,093.22 is principal (our arithmetic).
Business Loan Amortization Schedule Calculator: Reading the Principal Column
An amortization schedule lists every payment with its interest, its principal and the balance left after it. The principal column is the one that matters for equity: it shows how fast the debt is actually being paid off.
Early in a long loan, most of each payment is interest. Paying extra toward principal, where the loan allows it without a penalty, shortens the loan and cuts total interest; ask the partner how extra payments are applied.
Loan Maturity vs. Amortization: When a Balloon Remains
Maturity is when the loan must be repaid in full; amortization is the schedule the payments are calculated on. If they are the same length, the final scheduled payment retires the debt. When the amortization is longer than the maturity, a balance, often called a balloon, is due at maturity.
Illustration only, invented figures: the same $200,000 at an invented 8% with payments set on a 20-year schedule but a five-year maturity has payments of about $1,672.88 a month, and about $175,051 is still owed when the five years end (our arithmetic). The business then repays, refinances or renews.
What an Amortization Estimate Does Not Include
- Origination, closing or documentation fees, which reduce the amount received.
- Insurance a lender requires on collateral.
- A variable rate, which can move the payment up or down.
- Prepayment penalties or fees for paying early.
- Taxes on financed equipment, where they apply.
Use the calculator to compare schedules, then compare actual offers on their total of payments. A business term loan offer should state each of these.
By Brookharbor Lenders · Updated