LoansFinancial Glossary
Amortization
Definition
The process of spreading a loan repayment over a fixed number of scheduled instalments, with each EMI split between principal repayment and interest. In the early years of a home loan, the interest component dominates; towards the end, most of the EMI goes towards principal.
Why It Matters
Understanding amortization reveals why prepaying a loan in the early years saves dramatically more interest than prepaying later. A single extra EMI in year one of a 20-year home loan can shave off several months from the end of the tenure.