Loan amortization
from class: Math for Non-Math Majors Definition Loan amortization is the process of paying off a loan through scheduled, periodic payments that cover both principal and interest. Over time, the portion of each payment that goes towards interest decreases while the portion covering principal increases.
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Predict what's on your test 5 Must Know Facts For Your Next Test Amortization schedules are typically used to outline payments for mortgages, auto loans, and personal loans. The total amount paid over the life of an amortized loan includes both the principal and interest. Early in the loan term, most of each payment goes towards interest rather than principal. Amortization allows borrowers to see exactly how much they owe at any given point during the repayment period. The concept of negative amortization occurs when monthly payments are insufficient to cover all interest costs. Review Questions What happens to the proportion of interest vs. principal in loan payments as time progresses? Why is an amortization schedule useful for borrowers? Explain negative amortization in your own words. "Loan amortization" also found in:
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