Annuity repayment
Level debt service: interest falls, principal rises.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: annuity repayment.Updated 2 October 2026
Part of project finance and infrastructure models, with the models, labs and guides around it.
What it does
Debt repaid like a mortgage: the same debt service every period of the tenor, sized as the balance times the rate over one less the discount factor at maturity. Interest is charged on the opening balance, so it falls as the loan amortises and principal makes up the rest of each payment; the balance reaches zero at maturity as an identity. Availability PPPs use it because their revenue is contracted, and its effect on cover depends on indexation: with revenue partly indexed and service level, the first years are the tightest. Sculpting is the alternative when cash flow is uneven.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 16–17: Senior debt interest rate (fixed by swap), Debt tenor, operating years (annuity repayment)
- Debt, rows 6–14: Opening balance, Drawn, with interest during construction, Balance at completion, Annual debt service: balance x rate / (1 - (1 + rate)^-tenor)…
What a reviewer looks for
- Service sized on the drawn amount before interest during construction is added.
- Interest on the closing balance, which makes the schedule circular.
- Debt service charged in construction periods.
Learn it, then build it
Build · Lab · ~12 min
DSCR Sculpting
Sculpt debt service to CFADS at a target DSCR, size the loan as its present value, split a payment into interest and principal, and explain why a level repayment profile fails a project lender.
Read · Guide · 12 min
Project Finance Modelling: Cash Flow Waterfalls, DSCR Sizing and the Debt Sculpt
Vocabulary: DSCR (Debt Service Coverage Ratio), Debt Sculpting.