Compare with a sinking fund, which amortizes the total debt outstanding by repurchasing some bonds.
Amortization of debt has two major effects: In EMI or Equated Monthly Installments, payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model.
This is captured by the formula or, equivalently, where: P is the principal amount borrowed, A is the periodic amortization payment, r is the periodic interest rate divided by 100 (nominal annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360).
If the repayment model for a loan is "fully amortized", then the last payment (which, if the schedule was calculated correctly, should be equal to all others) pays off all remaining principal and interest on the loan.
The number weighted average of the times of the principal repayments of an amortizing loan is referred to as the weighted-average life (WAL), also called "average life".