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Loan Amortization

Financial glossary · plain-language definition · Personal Finance

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). Early payments are mostly interest; late payments are 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 · Capital Gains Distribution · Capitalized Interest · Cost Basis · Dividend Discount Model (DDM)

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