Lending term
Amortisation
How a loan balance is repaid over time
Definition
The schedule by which each repayment is split between interest and principal, gradually reducing the outstanding balance to zero by the end of the term.
In more detail
On a standard amortising loan the payment amount stays level, but its composition changes. Early payments are weighted towards interest because interest is charged on a larger balance; later payments retire principal faster.
This is why the elapsed proportion of a mortgage term is not the same as the proportion of the debt repaid, and why extending a term lowers the monthly payment while raising total interest.
Example
On a 25-year mortgage, roughly the first third of payments retires a small share of the principal. Shortening the term raises the monthly payment but cuts total interest paid.
Glossary entries are general explanations, not advice. Where a term appears in a contract or policy, the definition in that document governs.