Amortization

Amortization

Amortization describes the structured repayment of a debt over time through regular payments. Each payment is divided into two parts: interest (the cost of borrowing) and principal (reducing the balance owed).

How the Split Changes Over Time

At the start of a loan, most of each payment goes to interest. As the principal decreases, less interest accrues monthly, so a growing share of each subsequent payment reduces the principal. This front-loading of interest benefits the lender.

Example — $200,000 mortgage at 6%, 30 years:

| Period | Monthly Payment | Interest Portion | Principal Portion | |--------|----------------|-----------------|------------------| | Month 1 | $1,199 | $1,000 | $199 | | Year 5 | $1,199 | $960 | $239 | | Year 15 | $1,199 | $820 | $379 | | Year 25 | $1,199 | $530 | $669 |

Related Tools

• Mortgage Calculator — Calculate your monthly payment.
• Loan Amortization — View your full repayment schedule, payment by payment.
• ROI Calculator — Measure return relative to borrowing costs.