What is Amoritisation

Readers Question: What is  Amortisation ?

Amoririsation is the running down of a loan through regular payments. A good example is a capital repayment mortgage. In this case the homeowner pays monthly installments paying both interest on the loan and also capital repayments. This means that after 30 years the loan will be paid off.

The opposite of amortisation is an interest only mortgage. With an interest only mortgage, only interest payments are made. This means that the capital debt of the loan remains. Usually, with an interest only mortgage the borrower is required to find an alternative investment plan to be able to pay off the debt.

See also:

• Interest Rates explained