What is an amortization schedule and how does it work?

An amortization schedule is a table showing each monthly payment on a loan broken down into the portions applied to principal and interest over the entire loan term. In the early years of a fully amortized loan, most of each payment goes toward interest, with a small portion reducing the principal balance. As the loan matures, the interest portion decreases and the principal portion increases. By the final payment, the loan is paid in full. A 30-year fixed mortgage at six percent interest will pay roughly 54 percent of total payments in interest over the life of the loan.