Loan and Amortization Glossary - Definitions & Terms Explained

Glossary of Loan and Amortization Terms

Amortization

The process of paying off debt over time through regular payments.

Amortization Schedule

A detailed table outlining each loan payment, breaking down the amount going toward principal and interest.

Annual Percentage Rate (APR)

The annual rate charged for borrowing, expressed as a single percentage representing the actual yearly cost of funds.

Compound Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Fixed Interest Rate

An interest rate on a loan that remains constant for the duration of the loan period.

Interest

The cost of borrowing money, usually expressed as an annual percentage of the principal.

Loan Principal

The initial amount of money borrowed before interest.

Maturity Date

The final payment date when a loan's principal and interest must be fully paid.

Negative Amortization

Occurs when the loan payments do not cover the interest due, causing the loan balance to increase.

Prepayment Penalty

A fee charged by lenders if a loan is paid off early.

Principal Balance

The remaining unpaid portion of a loan, excluding future interest.

Refinancing

Replacing an existing loan with a new loan, typically to obtain a lower interest rate or more favorable terms.

Simple Interest

Interest calculated only on the initial amount of money borrowed.

Term

The length of time set for the borrower to repay the loan.

Variable Interest Rate

An interest rate that can fluctuate over the term of the loan based on market conditions or an index rate.

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