Simple Amortization - a Powerful Teaching Tool
When I first started out as a loan officer, my 'boss' had me to a 30 year amortization by hand. No excel, just a simple calculator and a tall yellow notepad. He told me to take my time, do it month by month and write it out in columns. After several weeks spending an hour or so each day, I completed the task. I handed it to him, and he said:
'I don't need it, that was for you.'
We take for granted the ability to use modern tools of financial warfare in our job, but there are key lessons that can come from such an exercise. When I finished that hand written amortization, I felt I really had an in-depth understanding of how a loans amortize.
It lead me to questions about prepayments, different repayment strategies, how different loans amortized...
I've provided a simple excel file below of a standard mortgage amortization. I don't expect you have the time to do one by hand, but here's my challenge for you. Take 5 minutes and go month by month, or at least year by year. Does anything stand out to you?
Simple spreadsheets like this can be valuable tools to use when teaching or sharing a concept with a client.
TIP: One thing that surprised me when I first did this, was how long it took for the first 50% of the loan balance to be paid off. What's your guess on that before you look?
