Loan Amortization

Loan amortization is the gradual reduction of debt through regular payments that cover both interest and principal, with payment allocation shifting from interest-heavy to principal-heavy over the loan term.

Amortization PatternTypical 25-Year Loan
Early payments70-80% interest, 20-30% principal
Mid-term payments50% interest, 50% principal
Late payments20-30% interest, 70-80% principal
AccelerationExtra payments reduce term significantly
Impact ExampleAED 2M at 5%, 25 Years
Total paymentsAED 3,505,200
Total interestAED 1,505,200
Interest first yearAED 99,420
Principal first yearAED 40,788
Interest AED 7,140
Principal final yearAED 133,068
Acceleration StrategiesImpact
Bi-weekly paymentsSave 4-6 years, reduce total interest 20%+
Annual lump sum AED 50,000Save 8 years, reduce interest 30%
10% payment increaseSave 7 years, reduce interest 25%

Related Terms

Amortization SchedulePrincipalInterest RateMortgage TermPrincipal PaymentReducing Balance MortgagePartial Prepayment

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