Amortization Table

An amortization table, or schedule, provides details around each of the periodic payments that are made on a loan, typically a mortgage.  The amortization schedule provides insight into the specific dollar amounts that go towards the interest and principal components of your loan payment.  Additionally, it calculates accumulated interest and principal payments and leaves you with an outstanding loan balance at the end of each period. 

The payment on a fully amortizing fixed rate mortgage is fixed for the life of the loan.  Therefore, as the principal balance comes down, the interest charges on the loan will decrease as well; therefore, the proportion of the monthly loan payment that goes towards lowering the principal balance will increase as time goes on.  While paying down your outstanding principal balance will have no impact on your monthly payment, it will increase the proportion of the future monthly payment that goes towards principal repayment.

It should be noted that when a loan is refinanced, it essentially resets the amortization schedule with the new rates and terms.  In fact, even with a lower interest rate and principal balance, the borrower could wind up paying substantially more interest taking this approach.  Borrowers should evaluate the short term benefits of a lower payment against the longer term negatives of higher aggregate interest payments. 

Different types of loans carry different amortization tables.  For example, a 30 year fixed rate home mortgage will use a straight line amortization table while negative amortization loans will use a increasing balance table.  There are also bullet, annuity, and declining balance amortization tables as well to handle other types of loans.

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