Amortization

Amortization refers to the repayment of debt through regular installments over a specified period. Each installment covers both interest and a portion of the principal. the principal, so that the loan is gradually reduced until it is fully repaid at the end of the loan period.

Example of amortization

When taking out an annuity loan of NOK 1,000,000 with a term of 20 years and a fixed interest rate, the borrower will pay a fixed monthly amount. Initially, the interest portion constitutes a larger portion of the installment, but as the principal is reduced, the interest portion will decrease, and a larger portion of the payment goes to paying down the principal.