Amortization
The process of paying off a debt through scheduled, periodic payments of principal and interest.
Definition
Standard installment loans (mortgages, auto loans, student loans) are amortized: each payment is split between interest and principal, with the principal portion growing over time. Early in a long mortgage at high rates, 80%+ of each payment is interest. The monthly payment formula is fixed across the loan term.
Formula
P = L × [r(1+r)^n] / [(1+r)^n − 1]
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