What is the Definition of an Amortization Schedule?
When you take out a fixed-rate loan, it is helpful to understand how the amortization schedule works. Mortgages and car loans are two common types of loans with amortization schedules.IdentificationAn amortization schedule is the breakdown of each payment on a loan into interest, principal and, in some cases, escrow. The complete schedule will list how each payment is allocated until the loan is paid off.FunctionLoans are configured with the annual interest due on the outstanding principal balance. The amortization schedule works out how much interest is due for the payment and how much principal must be paid to pay off the loan during the term.EffectsThe principal balance is higher early in a loan, so the first payments will have have the highest proportion of interest. The amount of principal that amortizes increases with each payment.ExampleA 30-year, $100,000 principal has a monthly principal and interest payment of $600. During the first year, only about $100 of each payment goes
