Loan Amortization
The schedule that shows how each annuity payment on an amortizing loan splits between interest (on the remaining balance) and principal (paying down the loan). Distinct from accounting Amortization (the expensing of intangible assets). On a level-payment loan the early payments are mostly interest and the late ones mostly principal. On a 30-year mortgage at 6% with $1,799 monthly payment: month 1 = $1,500 interest + $299 principal; month 360 = $9 interest + $1,790 principal. The total payment is constant; the mix flips. This is an arithmetic property of any amortizing annuity, not a bank trick.
Related terms
Adjusted Cost Basis · Annuity · APTC · Backdoor Roth · Capital Gains Distribution · Capitalized Interest
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