In order to understand what is an amortization schedule, let us imagine that you are about to take out a 30-year fixed-rate mortgage.

The terms of the loan specify an initial principal balance which is the amount borrowed of $250,000 and an APR of 6.25%. Payments will be made monthly. Now the questions you will be grasping with are?

1. What will be the monthly payment?
2. How much of the first payment will be interest?
3. How much will be principal?

All this is calculated in an amortization schedule. An amortization schedule is a table that shows each loan payment and breakdown of the amount of interest and principal. It may also show the remaining balance after each payment has been made.

Fully amortizing loans such as home mortgages, car loans, etc. are quite common. Typically a fully amortizing loan is calls for equal payments throughout the life of the loan. The loan balance is fully retired after the last payment. Each payment or EMI consists of interest and principal payments. This principal payment slowly reduces the loan balance to Nil.

You can download the Amortization Schedule or create your own with our tutorial