Amortization Schedule

An amortization schedule is a table of every payment due on a loan. For each payment it shows the date, the total amount, the part that pays interest, the part that pays down principal, and the balance left afterward. "Amortize" simply means paying off a debt in steps over time.

The math is the same on every row. Interest for the period equals the opening balance times the periodic rate. The rest of the payment reduces principal. Take a hypothetical $100,000 loan at 6% a year, paid monthly over 10 years. The fixed payment is about $1,110. In month one, interest is $100,000 times 0.5%, or $500, so about $610 goes to principal. In month two, interest is charged on roughly $99,390, so it drops to about $497 and a little more goes to principal. By the final years, almost the whole payment is principal.

Not every loan pays down evenly. Many commercial loans amortize over a long period, such as 25 years, but come due much sooner, leaving a balloon payment. Others start with an interest-only period before principal payments begin.

Why it matters for lenders

The schedule is the plan the borrower agreed to, so billing, statements and late notices all depend on it. If the schedule is wrong, every bill after the error is wrong too.

The day-count method matters: interest on an Actual/360 basis (actual days over a 360-day year) comes out slightly higher than on a 30/360 basis at the same stated rate. The first payment date, rounding rules and how odd days at closing are handled also shift the schedule. Auditors and investors expect the balance on the schedule to tie to the general ledger.

The schedule also drives risk monitoring. A loan that is meant to pay down to a set balance before maturity shows whether refinancing risk is shrinking as planned.

How it works in practice

A private lender closes a $1.2 million loan on a small office building. At loan boarding, the servicing team enters the rate, the day-count method, the amortization period, the term and the first payment date. The system builds the schedule.

Six months later the borrower pays extra principal. The schedule must be recalculated so future interest is lower. If the lender later grants a loan modification, the old schedule is kept on file and a new one starts from the change date.

In a spreadsheet, these changes are where things break. Someone overwrites a formula, a prepayment is not reflected, and the borrower's statement no longer matches the ledger. A system that rebuilds the schedule from the loan terms, and applies each payment through a set payment waterfall, keeps the two in step.