amortization schedule
A complete table of periodic loan payments showing how each payment is split between interest and principal, and the remaining balance after each payment.
Example
“The amortization schedule showed that the first mortgage payment was 88% interest — only $120 of the $1,000 payment reduced principal.”
Memory Tip
AMORTIZATION SCHEDULE = the full payment roadmap. Shows interest vs. principal for every payment.
Why It Matters
Understanding your amortization schedule helps you see exactly how much of each payment goes toward interest versus principal, allowing you to make informed decisions about extra payments or refinancing options. This transparency is essential for budgeting and understanding the true cost of borrowing over the life of the loan.
Common Misconception
Many people believe that each loan payment is split equally between interest and principal throughout the loan term, but in reality early payments are mostly interest while later payments are mostly principal. This misunderstanding can lead to surprise when people realize how little principal they have paid down in the first years of a 30-year mortgage.
In Practice
On a $300,000 mortgage at 6 percent interest over 30 years, your monthly payment is approximately $1,799. In the first month, about $1,500 goes to interest and only $299 to principal, leaving a balance of $299,701. By month 300, nearly the entire payment goes to principal, demonstrating how the amortization schedule shifts dramatically over time.
Etymology
AMORTIZATION (gradual debt repayment) SCHEDULE (planned timetable). A SCHEDULE showing how debt AMORTIZES over time.
Common Misspellings
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