Amortization

A mortgage is not usually repaid as one lump sum. Amortization is the plan that splits repayment across many scheduled payments. Early in a fully amortizing loan, more of each payment often goes to interest; later, more goes to principal. An amortization schedule is the table of those planned payments. This page is about the process, not that table as a separate product.

Official consumer glossaries describe amortization as paying a loan down through regular payments that include principal and interest. Program handbooks may use the word inside a narrower servicing or eligibility setting.

Understanding amortization helps readers see why a remaining balance can stay large even after many payments, and why extra principal payments change the remaining debt.

Sam’s monthly payment first covers the interest that accrued, then the rest reduces the unpaid principal. After that payment, the debt is smaller than before, even if the change looks modest.

• Interest
• Monthly payment
• Principal