What is an amortization table? They are financial tables which are published and used throughout the real estate industry. They are tables most often used to find the payments needed to repay a home mortgage loan.
| The table below shows the monthly payments per $1,000 of loan for interest rates from 5% to 14% for periods ranging from 5 to 35 years. When you use an amortization table, notice that there are five variables: (1) frequency of payment, (2) interest rate, (3) maturity, (4) amount of the loan, and (5) amount of the periodic payment. If you know any four of these, you can obtain the fifth variable from the tables. For example, suppose that you want to know the monthly payment necessary to amortize a $60,000 loan over 30 years at 10½% interest. The first step is to locate the 10½% line. Then locate the 30 year column. Where they cross, you will find the necessary monthly payment per $1,000: $9.15. Next multiply $9.15 by 60 to get the monthly payment for a $60,000 loan: $549. If the loan is to $67,500, then multiply $9.15 by 76.5 to get the monthly payment: $617.63. Suppose the interest rate is 12%, the maturity is 35 years, and the amount of the loan is $100,000. The table below shows the monthly payment per $1,000 to be $10.16. Multiply this by 100 for a $100,000 loan and you get $1,016 as the monthly payment. At 13% interest this loan would cost $1,096 per month and at 14% it would cost $1,176 per month. |
AMORTIZATION TABLE
MONTHLY PAYMENT PER $1,000 OF LOAN
| Interest Rate | 5 years | 10 years | 15 years | 20 years | 25 years | 30 years | 35 years | |||||||
| 5.000% | $18.88 | $10.61 | $7.91 | $6.60 | $5.85 | $5.37 | $5.05 | |||||||
| 5.500% | $19.11 | $10.86 | $8.18 | $6.88 | $6.15 | $5.68 | $5.38 | |||||||
| 6.000% | $19.34 | $11.11 | $8.44 | $7.17 | $6.45 | $6.00 | $5.71 | |||||||
| 6.500% | $19.57 | $11.36 | $8.72 | $7.46 | $6.76 | $6.32 | $6.05 | |||||||
| 7.000% | $19.81 | $11.62 | $8.99 | $7.76 | $7.07 | $6.66 | $6.39 | |||||||
| 7.500% | $20.04 | $11.88 | $9.28 | $8.06 | $7.39 | $7.00 | $6.75 | |||||||
| 8.000% | $20.28 | $12.14 | $9.56 | $8.37 | $7.72 | $7.34 | $7.11 | |||||||
| 8.500% | $20.52 | $12.40 | $9.85 | $8.68 | $8.06 | $7.69 | $7.47 | |||||||
| 9.000% | $20.76 | $12.67 | $10.15 | $9.00 | $8.40 | $8.05 | $7.84 | |||||||
| 9.500% | $21.01 | $12.94 | $10.45 | $9.33 | $8.74 | $8.41 | $8.22 | |||||||
| 10.000% | $21.25 | $13.22 | $10.75 | $9.66 | $9.09 | $8.78 | $8.60 | |||||||
| 10.500% | $21.50 | $13.50 | $11.06 | $9.99 | $9.45 | $9.15 | $8.99 | |||||||
| 11.000% | $21.75 | $13.78 | $11.37 | $10.33 | $9.81 | $9.53 | $9.37 | |||||||
| 11.500% | $22.00 | $14.06 | $11.69 | $10.67 | $10.17 | $9.91 | $9.77 | |||||||
| 12.000% | $22.25 | $14.35 | $12.01 | $11.02 | $10.54 | $10.29 | $10.16 | |||||||
| 12.500% | $22.50 | $14.64 | $12.33 | $11.37 | $10.91 | $10.68 | $10.56 | |||||||
| 13.000% | $22.76 | $14.94 | $12.66 | $11.72 | $11.28 | $11.07 | $10.96 | |||||||
| 13.500% | $23.01 | $15.23 | $12.99 | $12.08 | $11.66 | $11.46 | $11.36 | |||||||
| 14.000% | $23.27 | $15.53 | $13.32 | $12.44 | $12.04 | $11.85 | $11.76 |
Loan Size
A amortization table is most often used to find the payments needed to repay a home mortgage loan. However, they can also be used in a number of other ways. Suppose that a prospective buyer can afford monthly principal and interest payments of $650 and lenders are making 30-year loans at 10½%. How large of a loan can your buyer of your investment property afford? In the table above find where the 10½% line and the 30-year column meet. You will see $9.15 there. This means that every $9.15 of monthly payment will support $1,000 of loan. To find how many thousand of dollars $650 per month will support, divide $650 by $9.15. The answer is 71.038 thousand or $71,038. By adding the buyer’s down payment, you know which investment property the buyer can afford to purchase.
Maturity
With an amortization table you can find the number of years necessary to repay a loan when you know the interest, loan amount, and the periodic payment. For example, if the amount to be borrowed is $200,000, the interest rate is 11½% and the monthly payments are $2,034, how long will it take to repay the loan? Divide $2,034 by 200 to get the rate per thousand: $10.17. Then look for $10.17 on the 11½% line. You will see that it falls in the 25-year column. So the answer is 25 years.
Interest Rate
An amortization table can also help you find the interest rate when you know the length of the loan, the loan amount, and the monthly payment. Again, the first thing you do is to find the monthly payment per thousand by dividing the loan payment by the loan size in thousands. Given a 20-year, $50,000 loan with monthly payments of $450, you first divide $450 by 50 to get the monthly payments per thousand: $9.00. In the 20 year column, this is opposite 9% interest.
As you have noticed, everything in the table above is on a monthly payment per thousand basis. With today’s technology an amortization table can be produced in a matter of seconds, it is possible to check on monthly payments for loans from $100 to 1,000,000 plus, to determine loan maturities for each year from 1 to 40 years, and to calculate many more interest rates.
Change in Maturity Date
An amortization table also shows the impact on the size of the monthly payment when the life of a loan is extended.For example, at 11%, a 10-year loan requires a monthly payment of $13.78 per thousand of loan. Increasing the life of the loan to 20 years drops the monthly payment to $10.33 per $1,000. Extending the loan payback to 30 years reduces the monthly payment to $9.53 per thousand. The smaller monthly payment is why 30 years is a popular loan with borrowers. Going beyond 30 years does not significantly reduce the monthly payment, 35 years reduces the monthly payment by only 16¢ per thousand but adds 5 years of monthly payments.
At still higher interest rates the reduction is even less impressive: at 12% interest, a $100,000 loan for 30 years requires monthly payments of $1,029 and at 35 years it is $1,016. Since the interest on this loan amounts to $1,000 per month, you can see why there is a limit as to how far the monthly payment can be reduced by extending its maturity. Being practical, amortized real estate loans are seldom made for more than 30 years. This is also affected by the life span of the property being mortgaged. Lenders do not like to lend for longer than three-quarters of the remaining useful life of a building. This permits a 30 year loan on a property with 40 remaining useful years and 15 years loan on a property with only 20 remaining years.
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