Amortization Schedule

by Investing School on September 6, 2010

An amortization schedule is a chart that provides information for each periodic payment that is required on a loan that is amortizing. An amortizing loan is a loan that has the principal paid down during the life of the loan. These payments are usually allotted in equal amounts. A mortgage is the most common amortized loan.

When you make a payment, a portion of these payments will be applied to the interest that is accruing or has accrued on the loan thus far. Whatever is remaining will be applied to the principal of the loan. The principal is the original amount borrowed before any interest has accrued.

When payments are first made, many of them will first be applied to the interest on the loan. As you continue to make the payments, these allocations will shift and later larger amounts will be dedicated to paying down the principal portion of the loan.

Amortization schedules are set in chronological order. The first payment is supposed to come due one full payment period preceding the loan being taken out. There should be equal payment amounts throughout the life of the loan and then the last and final payment will pay off the remainder of the loan.

When payments are made, you will receive a breakdown of where the interest and principal portions of your payments have been allotted and what you have paid thus far. It will also detail the remaining principal balance as of the latest payment.

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