Amortisation

Amortisation

Amortisation refers to the process of gradually repaying a loan over a specified period through regular, scheduled payments that include both principal and interest. Each payment reduces the loan balance until it is fully paid off by the end of the loan term. Amortisation schedules are typically structured so that the borrower makes consistent monthly payments, which helps with budgeting and financial planning. The concept of amortisation is commonly applied to mortgages, personal loans, and other types of instalment loans.

Understanding Amortisation

Predictable Payments

Amortisation provides a clear and predictable payment schedule, allowing borrowers to plan and budget their finances effectively.

Interest Cost Management

Understanding amortisation helps borrowers see how much of their payments go toward interest versus principal, enabling them to manage the overall cost of the loan.

Debt Reduction

Amortisation ensures that the loan balance decreases over time, leading to eventual debt elimination by the end of the loan term.

Financial Planning

Amortisation is essential for long-term financial planning, as it helps borrowers understand their repayment obligations and how they impact overall financial goals.

Equity Building

For mortgages, amortisation helps homeowners build equity in their property over time, which can be leveraged for future financial needs.

Types of Amortisation

Full Amortisation

In a fully amortised loan, the borrower makes regular payments that cover both interest and principal, ensuring the loan is paid off entirely by the end of the term.

Partial Amortisation

With partially amortised loans, payments cover interest and only a portion of the principal, resulting in a remaining balance at the end of the term, often requiring a balloon payment.

Negative Amortisation

In negative amortisation scenarios, payments are less than the interest due, causing the loan balance to increase over time. This situation can occur with certain adjustable-rate mortgages.

Understanding the concept of amortisation is crucial for borrowers to manage debt effectively, plan their finances, and make informed decisions about loans and investments.

DISCLAIMER: The information provided on this page is for general informational and educational purposes only and is never intended as financial advice. While we strive to ensure that the content is accurate and up-to-date, it may not reflect the most current legal or financial developments. Always consult with a qualified financial advisor or professional before making any financial decisions. Use the information at your own risk.

Glossary of Terms

Funding guide to downsizing billboard

Downsizing?

It's your time.

Get our free guide to downsizing your home fast and stress-free.

Confidence grows with knowledge

Get ahead with our useful resources and expert insight.
In Australia’s competitive property market, timing is often critical. For many property buyers, securing a new home or investment property...
Starting a construction company requires significant capital investment, careful planning and strategic financial management. For many start-up construction companies, securing...

Move Forward Faster

Reach your goals sooner with our borrowing and investing solutions.
arrow pattern

Manage subscription preferences

Enter your email to subscribe and choose the topics you’d like to receive.

Refer to our Privacy Policy for information on how we collect and store your personal information.

Choose your path to get started

funding icon borrow loan
I'm looking for a loan
Funding icon calculator
How much can I borrow
Are you a broker?
Login as a broker
investment 2 color
I'd like to start investing
funding original icon personalised service
I'd like to speak to an expert
Already have an account?
Login as an investor
Funding icon upload
I'd like to submit a client scenario
Funding icon accredited
I'd like to become an accredited broker
Already have an account?
Login as a broker