Understanding An Amortization Schedule

What is an Amortization Schedule?

An amortization schedule is a table, which details the periodic payments on an amortizing loan (typically a mortgage) as it pertains to a coordinating amortization calculator.

The term “amortization” refers to the process of paying off a debt (primarily a loan or a mortgage) over a standardized time through regular payments. A portion of each payment is used to satisfy interest while the remaining amount of the payments is applied towards the principal balance. The percentage of principal versus interest in each payment is thus determined through the amortization schedule.

That being said, a portion of every payment is applied towards both the principal and the interest of the loan; the exact amount applied to the principal will vary each payment—the leftover amounts from the principal payments go towards the fulfillment of the interest. As a result of this relationship, the amortization schedule reveals the specific monetary amount placed towards the interest as well as the specific amount put towards the principal balance. In the beginning payment periods, a large portion of each payment is devoted to interest; however, as the loan matures, larger portions of the amortization schedule go towards paying down the principal.

An amortization schedule runs in chronological order; the first payment to the schedule takes place one full payment period after the loan was taken out and not on the first day or the amortization date of the loan. The last payment to the amortization schedule will pay off the remainder of the loan; typically the last payment is delivered as a slightly different amount to the preceding payments.

An amortization schedule, in addition to breaking down each payment into principal and interest portions, will reveal an interest-paid-to-date, a principal-paid-to-date, and the remaining principle balance on each payment.

Types of Amortization Schedules:

Straight line amortization schedules
Declining balance
Bullet (an all at once amortization schedule)
Increasing balance amortization schedule (a negative amortization schedule)
Annuity

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