An annuity is a fixed, usually monthly, payment of a long-term debt. This can be a loan, a fixed deposit or a mortgage. In the case of consumer loans, the annuity payments are the same throughout the term, whereas in the case of mortgages, the annuity is fixed by contract for the duration of the interest rate fixation.
What does the annuity payment consist of?
Each annuity payment includes a principal payment (mortgage) and interest. The interest refers to the amount by which the debt is reduced, and the interest refers to the bank’s remuneration for lending the money. The annuity payment remains the same, but the ratio of interest to interest changes.
Did you know that an annuity is typically a fixed monthly payment?