What Is Amortization?
Amortization: Paying off a loan with regular payments that cover interest and gradually reduce the balance.
Amortization is the way a mortgage is paid down over time with equal monthly payments. Each payment covers that month's interest, and the rest reduces the principal.
How it shifts over time
Early payments are mostly interest. As the balance falls, more of each payment goes to principal.
Example: on a $350,000 30-year loan at 6.75%, the first payment of about $2,270 includes about $1,969 of interest and $301 of principal. By year 20, more than half of each payment goes to principal.
Amortization schedule
Your lender can provide a schedule showing interest, principal and balance for every payment.
Paying extra
Extra principal payments cut total interest and shorten the loan. Even one extra payment a year can take several years off a 30-year mortgage.