Amortization
The process of paying off a loan through regular payments, where each payment covers the interest due first and reduces the principal with the remainder. Early payments are mostly interest; later ones mostly principal.
What does amortization mean?
On an amortizing loan your payment stays level, but its split shifts every month: because interest is charged on the outstanding balance, the early payments are mostly interest and only a sliver goes to principal. As the balance falls the interest portion shrinks and principal repayment accelerates, which is why the last years of a 30-year mortgage retire the balance far faster than the first. An amortization schedule lays out that split, payment by payment.
Frequently asked
How is amortization calculated?
Each month the interest portion equals your rate divided by 12, times the current balance; the rest of your fixed payment goes to principal.
The next month interest is figured on the slightly lower balance, so the principal share grows a little with every payment. An amortization schedule tabulates that split for all 360 payments.
Why do early mortgage payments go mostly to interest?
Because interest is charged on the outstanding balance, which is largest at the start. On a fresh $300,000 loan the first payment is almost all interest and barely touches principal; as the balance falls the interest slice shrinks and principal repayment speeds up.
Do extra payments change the amortization schedule?
Yes. Any amount applied to principal shrinks the balance immediately, so less interest accrues and the remaining schedule shortens — often by years. It does not lower your required monthly payment, but it moves your payoff date forward.
Put it to use
Amortization Calculator
Generate a complete amortization schedule for any fixed-rate loan, every payment split into principal and interest.
Mortgage Calculator
Estimate your monthly principal-and-interest payment and see a full amortization schedule for any home loan.
Mortgage Calculator with Taxes & Insurance
See your full PITI payment: principal, interest, property tax, homeowners insurance, PMI and HOA dues.
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