Amortization

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Amortization is the process of paying off a loan over time through fixed, regular payments. Each payment is split between interest (the cost of borrowing) and principal (the amount you originally borrowed).

Early in a mortgage, most of each payment goes toward interest. As the balance shrinks, a larger share goes toward principal — so your equity builds slowly at first and faster later. An amortization schedule lays out this split for every payment over the life of the loan.

For example, on a 30-year loan your monthly payment stays the same the whole time, but in year one it might be mostly interest, while in the final years it's almost entirely principal. This is why making extra principal payments early has an outsized effect: it removes balance that would otherwise accrue interest for decades.

You can see a full amortization schedule for any loan — and how extra payments change it — using our mortgage payment calculator.

Related terms: Principal, Annual Percentage Rate (APR).