Amortization

Amortization is the gradual paydown of a loan's principal balance over time through scheduled payments, each of which covers both interest and principal. Longer amortization periods lower the monthly payment but increase total interest paid over the life of the loan.

Example

A $6,500,000 loan at 7% costs $518,936 a year on a 30 year amortization and $551,288 a year on a 25 year. The shorter schedule costs $32,352 more each year but pays the loan off five years sooner.