What is an amortization schedule?

An amortization schedule is a table that outlines each payment on a loan over time, indicating how much of each payment goes toward the principal and how much goes toward interest. This schedule is particularly important for borrowers as it provides a clear picture of how the loan balance decreases over the life of the loan and how interest is calculated on the outstanding balance. By illustrating this breakdown, borrowers can see how their payments contribute to reducing the total debt, and it helps them understand the impact of making additional payments or paying off the loan early.

The other options do not accurately represent what an amortization schedule is. While the first option mentions the total cost of a mortgage, it does not specify how payments are structured over time. A summary of the borrower's credit history does not involve payment schedules or their breakdown. Similarly, a plan for refinancing a mortgage is unrelated to how current mortgage payments are structurally organized. Thus, the second choice clearly and precisely defines the purpose and function of an amortization schedule.