Finance
What Is Amortization?
Amortization is the process of paying off a loan through fixed regular payments that cover both interest and principal over time.
Amortization is the schedule by which a loan is repaid in equal installments, where each payment covers that period’s interest first and puts the remainder toward the principal. Early payments are mostly interest; late payments are mostly principal.
On a 30-year mortgage, this front-loading means that after 10 years of payments a borrower may have paid off only about 20% of the balance. Extra principal payments early in the schedule save the most interest because they shrink the base every future interest charge is computed on.