Definition
An amortization schedule is a complete table of periodic loan payments showing the amount of principal and interest that comprise each payment until the loan is paid off. While the total payment amount remains the same throughout the loan term, the proportion of principal to interest changes over time. Early payments are mostly interest, while later payments are mostly principal. This schedule helps borrowers understand how their loan balance decreases and how much interest they will pay over the life of the loan.
Formula
Where P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of payments. The schedule applies this formula to create the payment breakdown.
Example
30-Year Mortgage Schedule Example
For a $300,000 mortgage at 4% interest, the monthly payment is $1,432. Payment 1 might allocate $1,000 to interest and only $432 to principal. By year 15, payment 180 would allocate about $680 to principal and $752 to interest. The final payment (360) applies nearly the entire amount to principal, with only a few dollars going to interest.