Amortization Schedule

An amortization schedule, also spelled amortisation schedule in Canadian and international usage, is a detailed table that shows how each mortgage payment splits between interest and principal over the life of the loan. In Canada, amortization (with a z) remains the preferred spelling in lender documents and mortgage contracts.

Amortization Schedule – Quick Facts

• Shows every mortgage payment from start to complete payoff
• Breaks down each scheduled payment into interest and principal portions
• Reflects how the loan balance declines over time
• Changes when rates, payments, or amortization fluctuate
• Helps borrowers understand total interest and equity buildup

What Is an Amortization Schedule?

An amortization schedule outlines the full repayment path of a mortgage. It lists each scheduled payment and shows how much goes toward interest, how much goes toward principal, and how the outstanding balance declines after every payment.

At the beginning of the mortgage, interest makes up a larger portion of each payment because the loan balance is highest. Over time, the interest portion falls, and the principal portion rises. The amortization schedule makes this progression transparent and predictable.

Borrowers and lenders use amortization schedules to assess cash flow, long-term costs, and the rate at which equity builds under a given mortgage structure.

Why Does an Amortization Schedule Matter for Mortgages?

An amortization schedule matters for mortgages because it shows the real cost of borrowing over time, not just the monthly payment. Two mortgages with the same payment can yield very different interest outcomes depending on the interest rate, amortization period, and payment frequency.

The amortization schedule also helps borrowers evaluate strategies such as lump-sum prepayments, accelerated payments, or shortening their amortization period. Each change alters the schedule and can significantly reduce total interest paid.

From a lender’s perspective, amortization schedules support underwriting, disclosure, and compliance by clearly illustrating repayment behaviour and the remaining balance at any point in the mortgage term.

What Information Does an Amortization Schedule Include?

A standard amortization schedule includes the following elements for each schedule payment:

• Payment number or date
• Total payment amount
• Interest portion of the payment
• Principal portion of the payment
• Remaining mortgage balance after payment

Some amortization schedules also include cumulative interest paid to date, which helps borrowers track long-term costs.

How an Amortization Schedule Works in Practice

An amortization schedule follows a structured and mechanical calculation.

Step 1: Set the mortgage terms.
A borrower takes a $500,000 mortgage at a 5% interest rate with a 25-year amortization and monthly payments.

Step 2: Calculate the regular payment.
The monthly payment is approximately $2,908.

Step 3: Allocate the first payment.
In the first month, interest is calculated on the full balance. Approximately $2,083 goes to interest, and $825 goes to principal.

Step 4: Update the remaining balance.
After the first payment, the mortgage balance drops to approximately $499,175.

Step 5: Repeat the process for each payment.
With each payment, the interest portion declines and the principal portion increases until the balance reaches zero at the end of the amortization period.

Example Amortization Schedule Snapshot

The amortization schedule makes these changes transparent, payment by payment. Using the same $500,000 mortgage at 5% with a 25-year amortization:

• Month 1 payment: $2,908
  • Interest: ~$2,083
  • Principal: ~$825
  • Balance remaining: ~$499,175
    
• Month 60 payment:
  • The interest portion is materially lower
  • The principal portion is materially higher
  • Balance was reduced significantly compared to the starting amount (~$442,900)

Common Mistakes and Misunderstandings About Amortization Schedules

• Assuming payments always reduce the balance evenly
• Confusing amortization schedule with mortgage terms
• Ignoring how interest rate changes alter amortization schedules
• Overlooking the impact of prepayments on total interest
• Believing the amortization schedule remains unchanged after renewal

Frequently Asked Questions (FAQ) About Amortization Schedules

Related Terms

 • Amortization
• Mortgage Term
• Principal
• Interest
• Prepayment