Amortization

Amortization — repaying a loan in fixed periodic installments, each splitting into interest (the lender’s income) and principal (your equity). Early payments are mostly interest — on a 20-year 7% loan, roughly three-quarters of year-one payments — and the split migrates toward principal over the term. The whole schedule is one spreadsheet formula: =PMT(rate/12, months, -loan). Reading an amortization table is Level 3’s basic literacy: it’s where financing cost, equity buildup, and the repricing cliff all become visible.

First used in: 3.1 · Leverage: the sword’s both edges