When you take out a loan to finance the purchase of a property in France, your bank gives you an essential but often misunderstood document: the amortisation schedule. This document details, month by month, how your loan is repaid and broken down between principal and interest. Knowing how to read it correctly allows you to check a loan offer, anticipate a resale or an early repayment, and objectively compare several bank proposals.
Summary
- The amortisation schedule details each instalment of your mortgage: outstanding capital, portion of capital repaid, portion of interest, insurance and total monthly payment.
- At the start of the loan, interest represents the largest part of the monthly payment; this proportion gradually reverses in favour of the capital repaid.
- This document makes it possible to check the consistency of a loan offer, estimate the cost of an early repayment, and know the outstanding capital at any time, which is useful in the event of a resale.
- The most common reading errors concern confusion between the monthly payment and the portion of capital, or forgetting the borrower's insurance in the calculations.
What is an amortisation schedule and how is it structured?
A simple definition
The amortisation schedule is a contractual document provided by the bank at the time of the loan offer, in accordance with its information obligations towards the borrower. It shows, instalment by instalment and up to the end of the loan, how each monthly payment reduces the borrowed capital. It is an essential annex to the loan offer and must be kept for the entire duration of the financing.
The columns systematically found
A typical amortisation schedule includes several columns that need to be identified:
- The instalment number, which simply indicates the rank of the payment, from 1 to the total number of monthly payments.
- The instalment date, corresponding to the month and year of the direct debit.
- The outstanding capital, that is, the amount still owed to the bank before and after each payment.
- The portion of capital repaid at that specific instalment.
- The portion of interest, calculated on the outstanding capital from the previous month and the loan rate.
- The amount of borrower's insurance, often constant if it is calculated on the initial capital.
- The total monthly payment, which adds together capital, interest and insurance.
How to read an amortisation schedule line by line
A breakdown that changes over time
The principle of an amortising loan with constant monthly payments is simple: the total amount paid each month remains identical (excluding variation in insurance or a variable rate), but its internal composition changes throughout the repayment period. At the start of the loan, the outstanding capital is still high, so the interest calculated on it is also high: the majority of the monthly payment goes towards paying interest, and only a small fraction actually repays the capital. Over the years, as the outstanding capital decreases, the portion of interest mechanically decreases while the portion of capital repaid increases, until it represents almost the entirety of the last monthly payment.
What each line reveals
To read a given instalment, simply start from the outstanding capital shown at the beginning of the line: the interest for that month is calculated by multiplying this capital by the loan's monthly interest rate. The difference between the monthly payment (excluding insurance) and this interest corresponds to the portion of capital actually repaid that month. This amount is then subtracted from the outstanding capital to obtain the new balance, which will serve as the basis for the following month's calculation.
Worked example: a loan of €200,000 over 20 years
The assumptions used
Let us take a loan of €200,000, over a period of 20 years (240 monthly payments), at a nominal rate of 3.50% excluding insurance. According to the constant annuity formula, the monthly payment amounts to approximately €1,159.90 per month (capital and interest, excluding insurance). Adding an illustrative borrower's insurance of €60 per month, calculated on the initial capital and therefore fixed for the entire duration, the total monthly payment comes to approximately €1,219.90 each month.
Instalment No. 1: the start of the loan
On the first instalment, the outstanding capital still stands at €200,000. Interest accounts for €583.33, while only €576.57 goes towards reducing the capital. After this first payment, the outstanding capital falls to €199,423.43.
Instalment No. 120: the midpoint of the loan (10 years)
After ten years of repayment, the outstanding capital before payment stands at approximately €118,112. On this instalment, interest now accounts for only around €344, compared with €815 allocated to capital repayment. The ratio has therefore largely reversed compared with the start of the loan.
Instalment No. 240: the end of the loan
On the very last monthly payment, the outstanding capital is no more than approximately €1,156.52. Interest is limited to €3.37, with most of the monthly payment, i.e. €1,156.53, going towards finally settling the capital. Over the 240 monthly payments as a whole, the total cost of the loan (interest excluding insurance) reaches approximately €78,376.
What the amortisation schedule is actually used for
Checking the consistency of a loan offer
Before signing an offer, it is advisable to reproduce or check a few lines of the schedule to make sure that the stated rate, term and amount borrowed do indeed correspond to the monthly payments indicated. This check makes it possible to detect any inconsistencies and to better negotiate the terms of your financing.
Anticipating the cost of early repayment
The amortisation schedule makes it possible to know precisely the outstanding capital at any instalment, information that is essential for assessing the amount to be repaid in the event of early repayment, whether partial or total. It also makes it possible to estimate the early repayment penalties that may be owed to the bank, which are generally capped by law.
Comparing several financing offers
When faced with several bank proposals, comparing amortisation schedules instalment by instalment gives a much more detailed picture than simply comparing nominal rates or the APR. This makes it possible to see concretely how the cost of the loan evolves over the entire term of the loan. To be guided through this comparison and secure your project, a local Capifrance estate agent can help you decipher the offers you receive.
Knowing the outstanding capital for a resale or a loan buyback
In the event of a resale or loan buyback project, the outstanding capital shown in the amortisation schedule is a key piece of information for calculating the net amount you will receive after repaying the current loan. Before starting these steps, it is useful to carry out a free property valuation in order to compare the current value of your property with the capital still to be repaid, and thus check the financial feasibility of your project.
Common mistakes to avoid
Confusing the monthly payment with the share of capital repaid
A common mistake is to believe that the entire monthly payment goes towards reducing the borrowed capital, whereas a significant portion corresponds to interest, especially at the start of the loan. This confusion can lead to overestimating the speed at which the capital is actually decreasing.
Forgetting borrower's insurance in the calculations
Borrower's insurance is sometimes presented separately from the capital and interest amortisation schedule, which can distort the perception of the actual monthly cost of the loan. It is important to always check whether the total monthly payment shown includes this insurance or not.
Overlooking the impact of a rate change or a modulation
In the case of a variable-rate loan or a modulation of monthly payments during the course of repayment, the initial amortisation schedule no longer reflects reality and must be updated by the bank. Relying on an outdated schedule can lead to errors in assessing the outstanding capital.
Conclusion
The amortisation schedule is not a mere administrative document to be filed away unread: it is a genuine tool for managing your home loan. By understanding its structure and how it evolves over time, you are able to check your loan offers and anticipate your decisions regarding early repayment, resale or loan refinancing, with full knowledge of the facts. If you are considering a purchase or sale project, do not hesitate to browse our property listings to refine your search alongside your financing simulations.
Frequently Asked Questions
Is the amortisation schedule mandatory?
Yes, the bank must provide it as an appendix to the home loan offer, before the final signing of the contract. It allows the borrower to have a complete and detailed view of the repayment of their loan over its entire term.
Why are interest payments higher at the start of the loan?
Interest is calculated each month on the outstanding principal, which is logically higher at the beginning of the repayment period. The more the outstanding principal decreases over the years, the more the amount of interest calculated on it also decreases.
How can the outstanding principal at a specific date be calculated?
Simply refer to the line corresponding to the desired instalment date in the amortisation schedule provided by the bank, which indicates this amount exactly. In the absence of an up-to-date schedule, your bank can also provide you with this figure upon simple request.
Does the amortisation schedule change in the event of early repayment?
Yes, any early repayment, whether partial or total, results in the bank drawing up a new amortisation schedule. This can either reduce the term of the loan while keeping the same monthly instalment, or reduce the monthly instalment while keeping the original term, depending on the option chosen by the borrower.
Can an amortisation schedule be obtained before signing a loan offer?
Yes, it is entirely possible to request a detailed simulation before the final signing, in order to compare several bank proposals. This is even strongly recommended to check the consistency of the announced monthly instalments and to secure your financing decision.
Author
Frédéric Rémy – Director of Sales Performance
A real estate professional with several years of experience within the Capifrance network, I would like to share essential advice with you to help you successfully complete your property project with our advisors.
