Amortization

Definition

Amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and a portion of the principal balance. In the early years of a mortgage, a larger portion of each payment goes toward interest, while in later years, more goes toward principal. An amortization schedule shows the breakdown of each payment over the life of the loan. Understanding amortization helps borrowers see how much interest they will pay over the loan's lifetime and how extra payments can significantly reduce total interest costs and shorten the loan term.