What is an Amortization table?
An amortization table is an easy-to-understand graph, which details the periodic payments on an amortizing loan (typically a mortgage or long-term loan).
The amortization table is a product of an amortization calculator. Once an individual inputs the necessary components into an amortization calculator, the individual will be able to view the remaining payments of their loan, how such payments affect the principal balance and interest of their loan and the expected date of maturity.
This product, which is regarded as the amortization table is organized into 4 rows and a number of columns based on the length (in years) of the loan to maturity. The rows are organized based on the payment period of the loan, the interest payments attached to loan; the amount directed towards the principal each payment period and the total remaining balance of the loan.
The term “amortization” refers to the process of paying off a debt (primarily a loan or a mortgage) over a standardized time through regular payments. A portion of each payment is used to satisfy interest while the remaining amount of the payments is applied towards the principal balance. The percentage of principal versus interest in each payment is thus determined through the amortization table.
That being said, a portion of every payment is applied towards both the principal and the interest of the loan; the exact amount applied to the principal will vary each payment—the leftover amounts from the principal payments go towards the fulfillment of the interest.
As a result of this relationship, the amortization table reveals the specific monetary amount placed towards the interest as well as the specific amount put towards the principal balance. In the beginning payment periods, a large portion of each payment is devoted to interest; however, as the loan matures, larger portions of the amortization table go towards paying down the principal.
An amortization table runs in chronological order; the first payment to the schedule takes place one full payment period after the loan was taken out and not on the first day or the amortization date of the loan. The last payment to the amortization table will pay off the remainder of the loan; typically the last payment is delivered as a slightly different amount to the preceding payments.
An amortization table, in addition to breaking down each payment into principal and interest portions, will reveal an interest-paid-to-date, a principal-paid-to-date, and the remaining principle balance on each payment.
Types of Amortization tables:
Straight line amortization tables
Bullet (an all at once amortization table)
Increasing balance amortization table (a negative amortization table)
When an individual finances a home with an amortization loan they must understand that a substantial allocation of their monthly payments is used towards the interest, especially during the first 18 years of the loan.
Even with decreasing interest rates and a decreasing principal balance, the borrower within an amortization loan can end up paying over 500% of the original loan amount.
The payments on an amortized mortgage remain the same for the entire loan period; regardless of the principal owed, the periodic payments towards fulfilling the obligation will remain the same.