Amortization schedule

Amortization comes from the Latin word "amortiser", which means to pay off or repay. The word is used today in relation to bank loans and mortgages.

An amortization plan thus means an installment plan, repayment plan or payment plan. It is a plan that makes visible the payments to be made on a loan before it is repaid.

The amortization schedule is often used in connection with bank loans or mortgages. If your bank or mortgage company does not provide an amortization schedule, you can typically ask for one.

Why make an amortization plan?

The main purpose of the amortization schedule is to provide clarity on the payments and repayments of a loan - for both lender and borrower.

The amortization schedule is basically the best tool to visualize the individual installments and show the length of the loan, the running costs and when the borrower is out of the loan and thus debt-free.

In practice, the amortization plan is often prepared for the borrower's overview, but in theory, the tool is useful for both borrower and lender, as both parties get full clarity on the loan if the amortization plan is thoroughly done.

Example of an amortization schedule

There are many good examples of an amortization schedule. Typically, as a borrower, you will not need to make one yourself, as most banks and mortgage companies will send it along with the other loan documents.

However, if you are a private lender or business and are asked for an amortization plan, we recommend that you make a simple and clear plan for the borrower.

Typically, an amortization schedule will consist of a set of rows and columns.

The rows represent the individual installments. For example, if there are 10 installments over 10 months, the plan will consist of 10 rows. In each row, there are columns that typically contain information about installments, any interest and the new amount due after the installment.

The amortization plan is relatively simple to create and can be made in Excel with relatively little effort.