The amount of each monthly payment is identical.
This will provide the lender with the following: You only pay off a small piece of the principle amount.Īs time goes on, more and more of each payment goes towards your principal (and you pay less in interest each month).Īmortizing a loan usually means establishing a series of equal monthly payments. Especially with long-term loans, the majority of each periodic payment is taken as an interest expense. Generally, your interest costs are at their highest at the beginning of the loan. With each monthly/quarterly payments a portion of the money goes to the principal amount and the other to interest amounts. In simple terms, Amortization happens when you pay off a debt over time with regular, equal payments. As per Wiki – “In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan (that is, amortized) according to an amortization schedule, typically through equal payments.”
