Mortgage Amortization Revisited

An Alternative Methodology

August A. Saibeni, CPA

Mortgage amortization methods and tables are well known to accountants, real estate professionals, and other financial professionals. CPAs learn how to develop and use mortgage amortizations in introductory accounting classes. Traditionally, beginning accounting students calculate period interest expense by multiplying the effective period interest rate by the outstanding loan balance, calculate period principal paid by subtracting the period interest expense from the total period payment, and then calculate the new remaining mortgage balance. In the past, when the author used the above-described method, rounding errors inevitably crept into the calculations. This article proposes a different method to develop an amortization schedule that minimizes or eliminates rounding errors.