Paydown

Paydown refers to the reduction of the principal amount of a loan or debt through scheduled or additional payments. Paydown is a common practice for mortgages, auto loans, and other installment loans, where borrowers make regular payments to reduce the outstanding balance over time. A paydown can also occur when a borrower makes extra payments to pay off debt faster, thereby reducing interest costs and improving their financial standing.

Example

A homeowner makes an extra $200 monthly payment toward their mortgage principal, accelerating the paydown process and reducing the total interest paid over the life of the loan.