Terminology (Leaving Cert Mathematics): Revision Notes

Amortisation refers to the process of spreading the repayment of a loan over a specified period of time. It is commonly used in two contexts:

• Loan amortisation, where a borrower repays a loan in fixed periodic payments covering both principal and interest.
• Asset amortisation, where the cost of an intangible asset (e.g., patents) is gradually expensed over its useful life.

Principal ($P$) is the original amount borrowed in a loan. Each payment contributes to reducing the principal while also covering interest costs.

Interest Rate ($r$) represents the cost of borrowing money, expressed as a percentage. In amortisation, it is typically applied periodically (e.g., monthly or annually).

Loan Term ($n$) is the total number of payment periods over which the loan is repaid (e.g., 20 years for a mortgage, typically paid in monthly instalments).

Fixed Repayment ($A$) is the regular payment amount that remains the same throughout the loan term. It covers both principal repayment and interest.

Amortisation Schedule is a detailed table showing the breakdown of each loan payment into principal and interest, along with the remaining balance after each payment.

Reducing Balance refers to the outstanding loan amount after each payment. Over time, a larger portion of the payment goes towards reducing the principal rather than paying interest.

The Amortisation Formula calculates the fixed repayment amount required to fully repay a loan over a given period. It accounts for both interest and principal reduction.