# Credit Policies and Procedures

Can someone please show me the formula to do an amortization schedule on paper? I have an 8 year loan, for 21,700 with a 6.5% interest rate.

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1. P = principal
r = interest rate per period
n = number of periods
M = monthly payment

M = Pr/[1 - (1+r)^-n]

So, start out with principal P.
The 1st payment will have interest Pr
So, Pr will go to interest, M-Pr will go to principal.

For the next payment, use the reduced principal P' = P-(M-Pr)
P'r goes to interest, M-P'r goes to principal

Keep on in this wise for n payments. Watch the amount of interest decrease, since the outstanding principal gets smaller. The remainder of the payment goes to pay principal, and keeps increasing.

There's a lot of number crunching here, so I suggest you use a computer, or just go online to any of the various mortgage calculators, and you can get a printed amortization schedule.

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