Decoding Banking Jargons: What is Amortization Schedule?

Mr. X, a 32-year-old IT professional in Pune, finally decided to buy his dream 2BHK flat. After months of site visits, he zeroed in on a ₹75 lakh apartment and got a home loan of ₹50 lakhs for 20 years at an interest rate of 8% p.a. He decided to make a down payment of the remaining ₹25 lakh from his own pocket.

The bank sent him the approval letter and a document titled: “Loan Amortization Schedule”.

He stared at the sheet filled with numbers and columns titled EMI, Principal, Interest, and Balance—and had no idea what it meant. In this blog, we’ve decoded the meaning of amortization schedule with examples. Let’s dive in!

What is an Amortization Schedule?

An Amortization Schedule is a month-by-month breakdown of how loan gets repaid.

Each EMI he pays is split into:

• Principal (the amount borrowed)
• Interest (the cost of borrowing)
• Outstanding Loan Balance (what’s left to pay)

Mr. X’s Loan Summary:

• Loan Amount: ₹50,00,000
• Tenure: 20 years (240 months)
• Interest Rate: 8%
• EMI: ₹41,822 (approximately)

To know the exact EMI (Equated Monthly Instalment) of your loan, use our online loan EMI Calculator.

The Hidden Story in Numbers

Mr. X’s first 5 EMIs looked like this:

Disclaimer: The above numbers are indicative and is solely for illustration purposes. Please use an EMI calculator to calculate you loan EMI.

Mr. X noticed something shocking. In the first year, over ₹4 lakhs of his payments would go just in interest. Only a fraction would reduce the principal.

Mr. X’s Aha Moment – Prepayment Power

Mr. X decided to consult a financial advisor, who said: “If you prepay ₹5 lakhs in year 3, you could save over ₹8–10 lakhs in total interest and close the loan almost 5 years earlier.”

That’s when he realised amortization is not about repaying the loan; it's about outsmarting the loan. The schedule is a tool, not a trap.

Pro Tip: Before prepaying your loan, learn about the prepayment or foreclosure charges.

How You Can Use Amortization to Win

Just like Mr. X, you too can use the amortisation schedule to:

• Plan prepayments at the right time (earlier = better).
• Track how much of your EMI goes toward interest vs principal.
• Decide whether to choose EMI reduction or tenure reduction when prepaying.
• Compare fixed vs floating interest strategies.
• Evaluate if balance transfer will actually save money.

What Happens If Interest Rates Change?

Mr. x’s friend, Mr. Y had a floating rate loan. When the RBI reduced the repo rate by 0.5%, his EMI schedule was recalculated. With floating rates, the amortization schedule is dynamic.

Mr. X chose a fixed rate for the first 3 years to avoid this uncertainty.

Learnings in a Nutshell