Methods of Amortization
There are different methods in which to arrive at an amortization schedule. These include:
- Straight line (linear)
- Declining balance
- Annuity
- Bullet (all at once)
- Balloon (amortization payments and large end payment)
- Increasing balance (negative amortization)
Amortization schedules run in chronological order. The first payment is assumed to take place one full payment period after the loan was taken out, not on the first day (the amortization date) of the loan. The last payment completely pays off the remainder of the loan. Often, the last payment will be a slightly different amount than all earlier payments.
In addition to breaking down each payment into interest and principal portions, an amortization schedule also reveals interest-paid-to-date, principal-paid-to-date, and the remaining principal balance on each payment date.
Read more about this topic: Amortization Schedule
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