| An amortization schedule, in general, is a record of loan | | | | applied towards the principal and the balance owed to |
| or mortgage payments. This record includes the | | | | the Lender. This is done immediately after the |
| payment number, date, amount, breakdown of principal | | | | borrower gives the lender the $350 payment and |
| and interest and the remaining balance owed after the | | | | balanced owed is $9,750.00. |
| payment. Here is an example on how an amortization | | | | The interest for the borrowed money is calculated and |
| schedule is calculated. | | | | taken first whenever any payment is made. The |
| Let's say a person has been loaned $10,000 from a | | | | remaining amount goes towards reducing the principal. |
| lender. The annual interest rate (AIR) is 12% with a | | | | A negative amortization schedule is produced and the |
| payment of $350 each month to the lender. Twelve | | | | principal owing starts to increase if the payment |
| percent per year is one percent per month. The lender | | | | doesn't to cover the interest. The interest shortfall is |
| gives him the $10,000 on June 15th - the advance date; | | | | added to the balance. |
| and one month later (July 15th), the first monthly | | | | The next monthly payment is due on August 15th, the |
| payment is due. | | | | balance owed is $9,750 and the interest owed for the |
| The lender multiplies the monthly interest factor times | | | | use of the money for the second month is 0.01 x 9,750 |
| the outstanding balance and the interest owed for the | | | | = 97.50. $252.50, hence, is applied against the loan or |
| first month is $100.00 (.12 x 10,000/12), which is done at | | | | mortgage. The balance owing immediately after that |
| the end of the month. $250 of the monthly payment is | | | | second payment is $9,497.50. |