Amortization Schedule

What Is an Amortization Schedule?

An amortization schedule is a table that covers the entire life of an amortized loan. It lists every scheduled payment, the share of each payment that goes toward interest, the share that reduces the principal, and the balance still owed afterward. Lenders often provide one when a loan is made, and borrowers can also build their own with a spreadsheet or an online calculator.

How It Works

On a typical fixed-payment loan, the payment amount stays the same each period, but the split between interest and principal changes. Interest is charged on the outstanding balance, so early payments carry a large interest share. As the balance falls, each later payment shifts toward principal. Each row of the schedule follows the same steps:

• Interest for the period equals the opening balance multiplied by the periodic interest rate.
• Principal for the period equals the fixed payment minus that interest.
• The closing balance equals the opening balance minus that principal, and becomes the next row's opening balance.

For monthly payments, the interest step can be written as:

Monthly interest = Opening balance × (Annual interest rate ÷ 12)

An Example

Suppose someone borrows $200,000 at a hypothetical 6% annual rate over a 30-year loan term, with monthly payments of about $1,200. In the first month, interest is about $1,000 (the $200,000 balance times 0.5%), so only about $200 reduces the balance. The schedule shows the balance falling slowly at first. Near the end of the term, almost all of each payment goes to principal. Over the full 30 years, total interest paid comes to more than the original $200,000 borrowed.

Why It Matters to Investors

Anyone with a loan, including investors who use borrowed money or finance rental property, can use an amortization schedule to see what the loan really costs. It shows how much of each payment builds equity and how much pays the lender's charge. It also shows how extra principal payments can shorten the term and reduce total interest. Schedules reveal when a balloon payment is due, which is a large final sum that some loans leave unpaid. A schedule assumes all payments are made on time and the rate does not change. Variable-rate loans need new schedules whenever the rate resets.