Amortization Schedule

Financial Dictionary -> Mortgages -> Amortization Schedule

An Amortization Schedule is a table that lays out the details of each payment in regards to an amortizing loan, such as a mortgage on a house. Amortizing simply means a loan, where the principal amount is paid off in equal amounts over the lifetime of the loan, usually with added interest.

In order to set up a detailed and accurate amortization schedule an amortization calculator is used, many of which can be found online. You'll enter details about the loan, including the principal amount, the term of the loan (how long it is taken out for), the interest rate, and the start date, and it will work out the payment due. In order to work out the next months' payment, separated for interest and the principal amount, take away the principal payment made in the prior month from the loan balance, and then re-enter all the data in to the calculator.

A detailed amortization schedule notes the exact amount put aside for interest, and the exact amount needed for the Principal amount. During the beginning years of a loan a bigger portion usually goes towards paying interest, and nearing the end of the term, a lot more is paid in regards to the principal amount.

For many people an amortization schedule is unnecessary as they are already aware of the amount due each month. It only really comes in to play for those that are changing the terms of their mortgage, or for those still planning on taking a mortgage and weighing up what they can afford. It is a good method to determine how much interest you will have to pay over the whole term of the loan.

However the actual banks and lenders will use amortization schedules religiously themselves to calculate all the loans they have given out.