What typically happens to the principal repayment in linear amortization over time?

In linear amortization, the principal repayment amount remains constant throughout the term of the loan. This means that the borrower pays the same amount towards the principal balance in each installment. As a result, while the principal portion of each payment stays the same, the total payment amount decreases over time because the interest component of each payment varies depending on the outstanding balance of the loan.

Initially, when the loan is taken out, the interest payments are higher since they are calculated based on the original principal. As the principal gets paid down with each installment, the interest charged on the remaining balance decreases, leading to lower total payment amounts over time. This structure is different from other amortization methods, such as the declining balance method or fully amortized loans, where the principal repayment might not be constant.

Understanding linear amortization is crucial as it affects cash flow management and planning for both borrowers and lenders, especially in a real estate finance context.