amortization schedule meaning
In business, amortization refers to spreading payments over multiple periods. The term is used for two separate processes: amortization of loans and assets. A report that usually shows the principal and interest allocation of each monthly payment during the first year,the total principal and interest paid in each subsequent year, and the total interest that will be paid over the life of a loan. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end. Amortization of loans [edit]. In lending, amortization is the distribution of payment into multiple cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. where: P is the principal amount borrowed, A is the periodic amortization payment, r is the periodic interest rate divided by 100 (nominal annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360). YES NO 3 people found this helpful. “ When we were ready to purchase our first home the amortization schedule shocked us because the amount we would pay for the house over the length of the loan was more than double the purchase price. ”. “ The amortization schedule was strictly adhered to by the debtor as they wanted to pay off the debt as much as we wanted them to. Amortizing a debt means to reduce the balance by paying principal and interest on an established schedule. By making regular, scheduled payments on time, the loan or mortgage will be paid off by a maturity date. Loan Amortization Schedule. The schedule according to which one repays a loan. The loan amortization schedule shows the amount of each installment and how much principal and/or interest is repaid each month. See also: Amortization. Definition. The schedule of payments for paying off a loan. An amortization schedule breaks down the payments into interest and principal, which is helpful because with an amortized loan these the amounts vary with each payment.
An amortization schedule breaks down the payments into interest and principal.