Amortisation

Amortisation is the process of paying off a loan through regular scheduled payments over time, where each payment covers both interest and a portion of the principal. In the early stages of an amortising loan, a larger share of each payment goes toward interest; as the balance decreases, more of each payment reduces the principal. This is why the total interest paid over the life of a long-term loan is significantly higher than for a short-term loan at the same rate. An amortisation schedule is a table showing exactly how much of each payment goes to interest and principal, and what the outstanding balance is after each payment.