Loanfactz Definitions

Amortization Schedule

An Amortization Schedule shows how much of your loan payment is applied to both the * principal and the * interest over the life of the loan. As you can see in the example below, it takes many years of mortgage payments before most of your money goes towards the principal balance of your loan. With each monthly payment you make, more of the payment amount is applied to the principal and less is taken by the lender for interest. 20 years of payments still leaves you with just about half of your payment still going towards the interest.

Example:
Loan amount: $200,000.00
Interest rate: 6.5%
Length of loan: 30 years (360 payments)

Your monthly payment:     $1264.14
1st payment:
Amount credited to your loan (principal): $180.81
Amount taken by lender for interest:     $1083.33

  60th payment   (5 years): Principal:   $248.68 Interest: $1015.46
120th payment (10 years): Principal:   $343.87 Interest:   $920.27
240th payment (20 years): Principal:   $657.55 Interest:   $606.59
348th payment (29 years): Principal: $1178.43 Interest:     $85.71

Glossary For This Page
(In Alphabetical Order)

* Interest
The cost you pay to borrow money from a lender, expressed as a percentage of the amount borrowed. The interest is included in the payment you make to the lender.

* Principal
The amount of money borrowed or the amount of the loan that has not yet been paid back to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan at any given time.

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