Amortization Schedule

An amortization schedule is a table showing each loan payment divided into interest and principal, along with the remaining balance. Cash on cash return uses the full payment, but the schedule shows how much of that payment is building equity instead of leaving your pocket.

On the default loan, the first year's $30,698 of payments splits into about $27,068 of interest and $3,629 of principal. After five years about $21,080 of principal has been paid off. None of it appears in cash flow, yet it is part of the owner's return.

That is why some investors quote a second figure that adds principal paydown back to cash flow. On this deal it lifts the first-year return from 6.3% to about 8.8%. The amortization calculator produces the full schedule for any loan.

Further reading: Amortization Schedule on Wikipedia.