What is an amortization schedule?
An amortization schedule is a table with the details of the amount of each payment allocated to principle and interest. Every payment made on a loan is split between principle and interest. An amortization schedule provides the exact amount remaining on a loan after each payment is made. Amortization schedules are used in financial institutes to determine the amount outstanding on a loan at any point in time. The schedules are created for ease of use, but the actual formula to determine the amortization of an item is as follows: A = interest X principle X (1 + interest)number of periods (1 + interest)number of periods – 1 If the schedule is using monthly payments, the interest rate used is the annual interest rate divided by 12. The value for the number of periods is the number of periods times 12. Amortization schedules are used with long-term debts, such as mortgages, car loans and personal loans. The purpose of an amortization schedule is to account for compounding interest over tim
