Mortgage & Home Loans

What is Amortization?

Amortization is how your monthly payment gets split between interest and principal over the life of the loan. An amortization schedule shows exactly where each dollar goes, from month one to payoff.

Early on, most of your payment goes to interest because the principal balance is highest. Over time, as you pay down the balance, less interest accrues and more of your payment chips away at the principal. Equity builds faster in the second half of the loan.

You can use this to your advantage. Extra principal-only payments early in the term reduce the balance that interest is calculated on, shortening the loan and saving you money.

Quick Facts

Amortization SplitEarly term is interest-heavy, late term is principal-heavy

Payoff AccelerationAchieved by making extra principal payments

Standard Amortization30-year conventional mortgage schedule

Schedule AdjusterRefinancing or principal prepayments

PRACTICAL EXAMPLE

Take a $350,000 mortgage at 6.5% for 30 years. Your payment is $2,212.24. The first month, $1,895.83 goes to interest — just $316.41 pays down your loan. By year 15, the split has nearly flipped: $1,308.20 to interest, $904.04 to principal.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

PrincipalThe original amount of money borrowed on a mortgage loan, or the outstanding balance remaining unpaid.

Interest RateThe percentage charged by a lender for borrowing mortgage funds, representing the annual cost of credit before fees.

RefinancingThe process of replacing an existing mortgage with a new one under different interest rates or terms.

Closing CostsThe fees and expenses paid at the end of a real estate transaction to finalize the mortgage and transfer property ownership.

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