Understanding Amortization: How Your Mortgage Payments Change Over Time

What is Amortization?

Amortization is the process of paying off a debt over time through regular payments. With a mortgage, each payment is split between principal (the loan balance) and interest (the cost of borrowing).

How Amortization Works

In the early years of your mortgage, most of your payment goes toward interest. As time goes on, more of your payment goes toward principal. This creates an amortization schedule that shows exactly how each payment is divided.

The Amortization Schedule

Let's look at a $300,000, 30-year mortgage at 6.5% interest:

• Month 1: $1,896.20 payment - $1,625.00 interest, $271.20 principal
• Year 5: $1,896.20 payment - $1,450.00 interest, $446.20 principal
• Year 15: $1,896.20 payment - $1,100.00 interest, $796.20 principal
• Year 25: $1,896.20 payment - $600.00 interest, $1,296.20 principal

Why Early Payments Are Mostly Interest

This happens because interest is calculated on the remaining loan balance. When your balance is highest (at the beginning), you pay more interest. As you pay down the principal, the interest portion decreases.

Benefits of Understanding Amortization

• Make informed decisions about extra payments
• Understand the true cost of your loan
• Plan for refinancing opportunities
• See the impact of different loan terms

Making Extra Payments

Extra payments toward principal can significantly reduce your total interest and loan term. Even small additional payments early in your loan can save thousands in interest.

Use our mortgage calculator to see your complete amortization schedule and explore how extra payments can benefit you.