January 13, 2022
I am studying loan analysis in Excel. I have attached a file because I cannot tell if I'm developing an amortization table for two home loans correctly or not.
When you open the workbook, please click on the Amortization tab to find the work in question. There are 2 amortization tables that I don't trust. It seems to me that my calculations are wrong. If nothing else, the remaining principal after all payments have been made (at the bottom) seems too high.
The help I'm looking for is pretty simple:
- Please tell me if I'm using the right functions;
- Please tell me if I'm using them correctly;
- If I'm not using the right functions, please tell me which ones I should use;
- If I'm using the right functions incorrectly, please let me know my mistakes.
November 8, 2013
February 13, 2021
Here's my take on it - in the end your lending balance is zero.
In your PMT function you were using the new balance to calculate the payment - I'm assuming the payment for the mortgages don't fluctuate with the balance of the loan and remain at the $1,458.93, so you want to use cell C2 on all your calculated payments.
You're IPMT function, again you want to use the original loan amount, not the new calculated loan after the last payment.
You're PPMT calculation, again, use the original loan amount. On this one I also changed it to show negative to correctly calculate the remaining balance, obviously, if you want it to show a positive number you can do so and just subtract.
Finally, your Remaining Balance column was the beginning balance of the period subtracting out the payment and interest and adding back in the principle, but a remaining balance is simply beginning balance minus the principle payment, as interest isn't reflected in the balance.
Overall, your functions are the correct ones, just need to be tweaked just a twinge. I changed Loan 1 but Loan 2 is your original so you can see the difference. Hope my explanation makes sense. Good luck on your project!
The following users say thank you to Jessica Stewart for this useful post:Catalin Bombea
January 13, 2022
Thank you for your response. I figured out that I was supposed to only deduct the principle from the beginning balance by reviewing other workbooks that were provided by the publisher (I'm going through a book). But I didn't understand why I should only subtract the principle, not the interest also, until I read your sentence, "a remaining balance is simply beginning balance minus the principle payment, as interest isn't reflected in the balance." That's when it made sense to me. The interest belongs to the bank, which is why it shouldn't be deducted from the beginning balance.