Changing the Payment Amount makes more sense to me, and is the approach I use in my spreadsheets. This might be done by changing the Payment Amount or by changing the Interest Amount. When an amortization schedule includes rounding, the last payment usually has to be changed to make up the difference and bring the balance to zero. This spreadsheet rounds the monthly payment and the interest payment to the nearest cent, but it also includes an option to turn off the rounding (so that you can quickly compare the calculations to other calculators). Many loan and amortization calculators, especially those used for academic or illustrative purposes, do not do any rounding. Amortization calculations are much easier if you don't round. That is because the schedule is meant to show you the actual payments. Negative AmortizationĪ loan payment schedule usually shows all payments and interest rounded to the nearest cent.
The way to simulate this using our Amortization Schedule is by setting both the compound period and the payment frequency to annual. The interest portion of the payment is recalculated only at the start of each year. Some loans in the UK use an annual interest accrual period (annual compounding) where a monthly payment is calculated by dividing the annual payment by 12. When the compound period and payment period are different (as in Canadian mortgages), a more general formula is needed (see my amortization calculation article). In that case, the rate per period is simply the nominal annual interest rate divided by the number of periods per year. However, when creating an amortization schedule, it is the interest rate per period that you use in the calculations, labeled rate per period in the above spreadsheet.īasic amortization calculators usually assume that the payment frequency matches the compounding period. Usually, the interest rate that you enter into an amortization calculator is the nominal annual rate.
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