Debt

Amortizing loan

Also known as: level-payment amortization.

An amortizing loan (level-payment schedule) is a repayment method where the instalment stays constant while, within it, the interest portion shrinks and the principal portion grows over time.

Formula: Instalment = P × i / (1 − (1 + i)^−n)

It's the standard structure for most mortgages. Early on, most of the instalment is interest, so the outstanding balance falls slowly in the first years.

This structure explains why paying extra early in a loan's life saves far more interest than paying the same extra amount near the end.

Put it into practice

Mortgage payoff calculator

Related terms

Extra mortgage payment — An extra mortgage payment is money applied to a loan ahead of schedule to reduce the outstanding principal early, choosing between shortening the term or lowering the instalment.
APR — APR (annual percentage rate) is the effective annual cost or yield of a financial product, including interest, fees and charges, and it's the figure that lets you compare offers.
Liability — A liability is an outstanding payment obligation: a mortgage, personal loan, consumer credit, card balance or debt owed to someone else.

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Educational content. netclariq does not provide financial, investment, tax or legal advice.