Amortisation

Amortisation is the gradual repayment of a loan's principal over time through regular payments that cover both interest and principal.

How it works

Early payments are mostly interest, because interest is charged on a large outstanding balance. As the balance falls, more of each payment goes to principal. The shift is gradual and slower than most borrowers expect — on a 30-year loan, a substantial majority of the first years' payments is interest.

Why it matters

It explains why paying a little extra early has a disproportionate effect. Additional payments come straight off principal, reducing the interest charged for the entire remaining term.

Common misunderstanding

Halving the term does not double the payment. Because of how interest compounds, a 15-year term costs considerably less than twice a 30-year monthly payment — and dramatically less in total interest.

An interest-only period does not extend the term. The principal still has to be repaid over what remains.

Related terms

Last reviewed: 1 August 2026 · General information only, not financial advice.

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