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Amortization
Loan amortization is the repayment of principal over time through scheduled payments that also cover interest.
Loan amortization is the gradual repayment of principal through scheduled payments over time. In a typical fully amortizing mortgage, each payment covers interest and reduces the outstanding principal.
The principal portion reduces the amount owed; the interest portion pays the borrowing cost. For a typical fixed-rate mortgage, the allocation shifts toward principal as the loan balance declines.
Frequently Asked Questions
Does the entire mortgage payment reduce the loan balance?
No. Principal reduces the balance. Interest pays the borrowing cost, and a payment may also include taxes and insurance.
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