Amortisation
Amortisation is the schedule that splits a loan into equal repayments, each covering that period's interest plus a growing slice of principal until the balance reaches zero.
Also called amortization, loan amortisation schedule, repayment schedule
An amortising loan has level repayments, but the mix inside each one changes. Interest is calculated on the balance, so the first payments are mostly interest; as the balance falls, more of each payment goes to principal.
A $600,000 mortgage at 6.2% over 30 years repays at $3,674.81 a month. In month one, $3,100.00 is interest and $574.81 is principal. In the final year, almost the whole payment is principal.
Two consequences matter. Total interest depends far more on the rate and the term than on the size of the repayment, and extra repayments shorten the schedule rather than reducing the required payment. A loan is fully amortising when the last scheduled payment clears the balance exactly — a balloon or an interest-only period means it is not.
Common questions
Why is most of an early repayment interest?
Because interest is charged on the outstanding balance, which is at its largest at the start. The principal share grows every month as the balance falls.
What does fully amortising mean?
The scheduled payments clear both interest and principal by the end of the term, leaving nothing owing. A balloon payment leaves a lump sum outstanding instead.