How to Amortize by Hand

Preparation

1). Determine the interest rate for each payment period. For example, if the annual interest rate is 5 percent and the payment period is a month, then the interest rate per month is (5 percent/12 months) 0.42 percent.
2). Calculate the payment made for each period. This value could either be determined by using the rearranged present value of an annuity formula, Payment = Rate * Principal / (1 -- (1 + Rate) ^ (- Number of Payments)). Remember that the rate used is the rate per payment, so in the example you would use 0.42 percent. Alternatively, the payment could be decided arbitrarily, such as if you want to determine how much is saved in interest if current payments are increased.
3). Prepare a table with headings: "Period Number," "Principal Remaining at the Start of the Period," "Payment," "Interest," "Principal Repayment," and "Principal Remaining After Payment." Optional headers include "Cumulative Interest" and "Principal Paid."

1). Write the period number in the first column of the table.
2). Write the starting principal owed in the principal remaining at the start of the period column. For the first period, this is the amount borrowed. For all subsequent periods, this is the value from the "Principal Remaining After Payment" column of the previous period.
3). Write the monthly payment amount in the "Payment" column.
4). Calculate the interest owed in the period by multiplying the interest rate per period by the principal still owing at the start of the period. Place this number in the "Interest" column.
5). Calculate the amount of the payment that goes toward paying the principal by subtracting the interest owed (the value in the "Interest" column) from the payment made each month. This amount is the portion of the payment that goes toward paying off the principal borrowed, and is placed in the "Principal Repayment" column.
6). Subtract the "Principal Repayment" amount from the "Principal Remaining at the Start of the Period" column, and place the result in the "Principal Remaining After Payment" column.
7). Move on to the next row and repeat these steps until the "Principal Remaining After Payment" is zero.