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.
Key points
• The process of reducing the principal amount of a loan through regular or extra payments.
• Common for mortgages, auto loans, and installment loans.
• Accelerated paydown reduces interest costs and shortens the loan term.
Quick Answers to Curious Questions
Get the latest insights & exclusive offers delivered straight to your inbox.
Start Your Journey
Put your knowledge into action by opening an XS trading account today
