To most people, the amortization chart of a loan is like reading Greek, in other words, it is completely foreign. Pick a given period and it tells you how the interest and principal of the loan are broken up and applied. It is always front-loaded with interest (more of the interest is paid up front instead of spread over time) to insure that banks make their money off the loan. What I bet most people do not know, though, is they can reproduce an entire amortization chart for a loan as long as they know the period of the loan, the interest rate, and the amount the total loan is for. By putting those three items into an Excel workbook with the financial formulas of "ipmt" and "ppmt", each of which also require the reference of which period (that is, which month is being calculated), an amortization chart can be generated. Listing out the entire 360 months of a loan might seem time consuming, but it is quite easy as long as a person understands how to make the cells copy and paste while still reference the necessary information (the ipmt and ppmt would need to follow the number of the period, for instance). I know all of that explanation sounds extremely complicated, especially to someone unfamiliar with Excel. So why would I share how to create an amortization chart in this space? By having a complete amortization chart, a person can know what an additional payment to principal will do to reduce the interest of a loan going forward. What do I mean? Here is an example:
If I have always paid only the required payment, but now want to pay an extra $100 a month, I can tell how much benefit I get from that extra $100 by looking down the amortization column for "principal payment" below my current period to where $100 more gets me. In other words, the extra money is somewhat like "skipping ahead" in my loan amortization - which is what people mean when they say they have knocked a certain number of months or years off their loan by paying extra.
I have built a very helpful Excel workbook that has a lot of these amortization charts in it that allow me to determine what an increased amount of interest will do to my payment, or what an increased amount of payment will do to move me forward in my loan. Using these charts has helped me plan my extra payments and understand what I am accomplishing with an extra payment or two a year.