An amortization schedule is a table that lists every payment on a loan and shows how each one is split between interest and principal, along with the balance left afterwards. From it you can read what is still owed on any date.
Reading one row
To amortize a debt is to pay it down in regular installments. Principal is the amount borrowed that has not yet been repaid, and interest is the charge for borrowing it; both have their own entries in the note basics guide. A schedule gives each payment its own row, with these columns:
- Payment number and due date
- Payment amount
- Interest portion
- Principal portion
- Balance remaining after the payment
On a level-payment note the payment amount is the same in every row, while the interest and principal portions change from one row to the next.
An example with round figures
Suppose a note has $100,000 owed at 6% a year, and the payer sends $800 a month. Interest is charged on the balance still owed. A rate of 6% a year is 0.5% a month, and 0.5% of $100,000 is $500. The other $300 of the first payment comes off the principal, leaving $99,700.
| Payment | Amount | To interest | To principal | Balance after |
|---|---|---|---|---|
| 1 | $800.00 | $500.00 | $300.00 | $99,700.00 |
| 2 | $800.00 | $498.50 | $301.50 | $99,398.50 |
| 3 | $800.00 | $496.99 | $303.01 | $99,095.49 |
Example only, with figures chosen to keep the arithmetic easy. Your own schedule depends on your balance, rate and payment.
The second month starts from a slightly lower balance, so the interest is slightly lower and a little more of the $800 goes to principal. That repeats in every row. The interest share is at its highest in the first payment and falls each month after it, which is why the balance comes down slowly at the start of a loan and quickly near the end.
When the schedule and the payment record disagree
A schedule shows what should happen, and the payment record shows what did. The two part ways whenever a payment is late, short, skipped or larger than required. Extra principal shortens the loan, while a missed payment leaves the true balance higher than the schedule says.
Check the schedule against the payments actually received before you rely on it. A note buyer will do the same and will price from the real balance, so if the two do not match, find out why before you ask for a price on the note. Settling it means going back to the same records you would use to prove payment history on a note.
Schedules with a balloon or interest-only payments
Some notes do not run down to zero. Where a fully amortized note ends with a balance of nothing, a balloon note sets the payment as if the loan ran for a long term, then makes the whole remaining balance due on an earlier date, so its schedule ends with one large final row. On an interest-only note nothing goes to principal until the end, and the balance column shows the same figure in every row before the last.
What a note holder uses it for
The first use is knowing the balance. Provided every payment arrived on time and in full, the unpaid principal balance on any date can be read straight off the schedule. It is also the starting point for a payoff quote: if your payer wants to clear the note, the schedule gives the principal figure, and interest since the last payment is added to it. At tax time your CPA will want the yearly totals of interest and principal, because the two portions are generally treated differently.
Getting a schedule for your note
If a servicing company collects your payments, ask it for a current schedule and a payment history. If you collect them yourself, a loan calculator will build a schedule from the original amount, the rate, the payment and the start date, and you can then compare it with your bank deposits row by row.
Once the schedule agrees with your deposits, you know the true balance and the number of payments left. Save the schedule with its date and add a row each time a payment arrives, so the next time your payer, your CPA or a buyer asks what is owed, the answer is already written down.
Related questions
Why does so little of an early payment go to principal?
Interest is charged on the balance still owed, and the balance is highest at the start. As the balance falls, the interest portion shrinks and more of each payment goes to principal.
Is the balance on the schedule always the real balance?
Only if every payment was made on time and in full. Late, missed or extra payments move the true balance away from the schedule, so check it against the record of payments received.
Do I need an amortization schedule to sell my note?
It helps. A buyer needs the current balance and the number of payments left, and the schedule supplies both. If you do not have one, it can be rebuilt from the original loan terms and your payment record.