Definition
An amortization schedule is a detailed table that breaks down each periodic payment on a loan—most commonly a mortgage—into the portions that go toward interest and principal. It lists every payment from the start of the loan until it is fully repaid, illustrating how your outstanding balance steadily decreases over time.
Key Aspects
- Front-loaded interest: Early in the schedule, a larger share of each payment covers interest, with a smaller portion reducing principal.
- Shifting allocation: As the loan matures, the interest portion shrinks and the principal portion grows.
- Cumulative tracking: The schedule shows total interest paid to date, total principal paid to date and the remaining loan balance after each payment.
Real-World Applications
- Typical mortgage example: A $200,000 loan at 6% interest over 15 years would list each monthly payment amount and detail how much goes to interest vs. principal, steadily reducing the balance until it reaches zero.
- Commercial loans and balloon payments: Loans with a 10-year term but a 30-year amortization calculate payments over 30 years yet require a lump sum “balloon” payment at year 10 to retire the remaining balance.
- Online tools and spreadsheets: Amortization calculators and Excel functions (PMT, IPMT, PPMT) help borrowers and professionals build precise schedules and model how extra prepayments or refinancing can shorten the payoff timeline and save on interest.
Example
On a $200,000 loan at 6% APR amortized over 15 years, the first year’s payments might allocate roughly $11,769 to interest and $8,483 to principal. By the final year, each payment could be about $643 interest and $19,609 principal—fully satisfying the debt.
Why It Matters
An amortization schedule provides transparency into how your payments reduce debt and shows exactly when you’ll own your property outright. It also empowers strategic decisions—like making extra payments or refinancing—to minimize interest costs and accelerate equity growth.
