Amortisation

Amortisation is the process of gradually paying off a debt through a series of fixed, scheduled payments over time. Each payment covers both interest charges and a portion of the principal (the original loan amount).

How amortisation works

In the early years of a loan, the majority of each repayment goes toward paying interest. As the loan balance reduces over time, a greater proportion of each payment goes toward reducing the principal. This is why extra repayments made early in a loan term have the most impact on total interest paid.

Amortisation schedule

An amortisation schedule is a table showing each scheduled payment for the life of a loan, broken down into principal and interest components, along with the remaining loan balance after each payment.

Key points

• Fully amortising loans reach a zero balance at the end of the loan term
• Interest-only loans do not amortise — the principal balance remains unchanged
• Making extra repayments accelerates amortisation and reduces total interest paid
• The HoldingCost mortgage repayment calculator generates a full amortisation schedule