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Chapter 8: Problem 18

What is a loan amortization schedule?

Short Answer

Expert verified
A loan amortization schedule is a table of periodic loan payments, showing the amount of principal and the amount of interest in each payment, until the loan is paid off at the end of its term. It highlights how each payment impacts the loan, how much goes to interest, and how much goes towards improving the principal balance.

Step by step solution

01

Define Loan Amortization

Loan amortization is the process of paying off a debt over a period of time through regular payments. A portion of each payment is for interest while the remaining amount is applied towards the principal balance. Amortization schedules are most commonly used with mortgage loans.
02

Explain the role of an amortization schedule

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.
03

Describe the components of an amortization schedule

The main components of an amortization schedule are: the date of each payment, the amount of each payment, the amount of each payment that goes towards the principal, the amount of each payment that goes towards interest, and the remaining loan balance after each payment.

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