A debt service schedule, or amortization schedule, lists all periodic payments of both principal and interest over the life of the bonds.
There are various ways to structure debt service:
· Level principal structures pay equal amounts of principal each year over the life of the debt. As a result, interest payments, and therefore total debt service, decline each time as less interest is accrued off the decreasing principal balance.
· Level debt service structures are similar to many loans with equal installment payments. In a level debt service arrangement, the combined amount of principal and interest payments stay relatively constant each year. Toward the beginning of the term, interest makes up a larger portion of these payments; as principal is paid over the life of the debt, interest makes up a smaller portion of later payments.
· Ascending debt service may involve deferring principal or interest in early years, or principal payments that gradually increase over time. Ascending debt service may be used when revenues to pay off the debt are expected to grow over time, such as with a new facility or system. Generally this is referred to as balloon debt and, for governments, requires the approval of the Comptroller.