Amortization Schedules Key Terms

Familiarize yourself with these important amortization schedules key terms to grasp amortization schedule fundamentals

Amortization schedules are important tools used to forecast whether or not a specific loan is the right one to meet your needs. From mortgage loans to auto loans, amortization schedules utilize factors such as loan principal, fixed rate interest and the duration of the loan to determine your monthly payment schedule and payoff date.

If a business or personal loan is in your future, familiarize yourself with these essential amortization schedules key terms to ensure you understand amortization schedule fundamentals.

Amortization

Amortization is paying off the principal and interest of a debt, usually in the form of a loan, in even, scheduled payments.

Amortization calculator

An amortization calculator is a tool used to determine scheduled payment amounts for a loan. Factors such as the amount of the mortgage, the interest rate and the term of the mortgage are used to figure the monthly loan amount.

Loan principal

The loan principal is the complete amount of a loan without interest. An amortization schedule shows how much of a monthly payment goes toward the loan principal and how much goes toward interest.

Balloon payment

A balloon payment is a large payment on a loan that fulfills the payoff amount. A flexible amortization schedule allows for balloon payment figures in the forecast of payments.

Refinancing

Refinancing is the reconfiguring of a home loan at a better interest rate to decrease the monthly payment or to alter the loan duration. The initial mortgage contract is replaced with a new mortgage with a better interest rate. In loan refinancing, an amortization schedule is created with a new interest rate and loan duration factored in to determine the new monthly payment.

Fixed rate loan

A fixed rate loan is a loan that has an interest rate that remains the same throughout the duration of the loan. An amortization schedule uses the fixed interest rate with other loan factors to determine the monthly payment.
  • Many reputable banking institutions offer free online amortization calculators that can be used to create a amortization schedule.

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