Harness Money

What is an amortization schedule?

An amortization schedule is a table or spreadsheet that outlines the repayment of a loan or mortgage over time. It provides a detailed breakdown of each periodic payment, including the portion allocated to principal repayment, interest charges, and the remaining loan balance.

The schedule typically includes the following information for each payment period:

1. Payment Number: This indicates the order of each payment, starting from the first payment and progressing sequentially.

2. Payment Due Date: The date on which each payment is due.

3. Total Payment: The total amount due for each payment period, which includes both principal and interest.

4. Principal Payment: The portion of the payment that goes towards reducing the loan’s principal balance.

5. Interest Payment: The portion of the payment that covers the interest charged on the outstanding loan balance.

6. Cumulative Interest: The total interest paid up to the specific payment period.

7. Loan Balance: The remaining outstanding balance of the loan after each payment is made.

The amortization schedule is generated using the loan amount, interest rate, loan term, and any specific terms or conditions associated with the loan. It allows borrowers to understand how their payments are distributed over time and how the loan balance decreases.

Typically, in the early stages of the loan term, a larger portion of the payment goes towards interest, while a smaller amount is applied to the principal. As the loan progresses, the interest portion decreases, and the principal portion increases, resulting in a higher reduction of the outstanding balance.

Amortization schedules are valuable tools for budgeting, financial planning, and understanding the total cost of borrowing. They provide transparency regarding the amount of interest paid over the loan term and allow borrowers to see the impact of extra payments or adjustments to the loan term.

It’s important to note that the amortization schedule is based on fixed payment amounts and assumes that the interest rate and other terms remain constant throughout the loan term. In cases of variable interest rates or other specific loan provisions, the amortization schedule may need to be adjusted accordingly.