Amortization
The schedule by which a loan balance is paid down over time through regular payments of principal and interest.
On a fully amortizing loan, each payment is calculated so the balance reaches zero exactly at the end of the loan term. The composition of each payment shifts over time, early payments are mostly interest, later payments are mostly principal, but the total payment stays constant on a fixed-rate loan.
An amortization schedule is a table showing every payment over the life of the loan, broken down by principal, interest, and remaining balance. It's a powerful planning tool: you can see exactly when you'll cross 80% LTV (and become PMI-eligible for cancellation), or how much faster a payoff comes with even modest extra principal payments.
Some loans are non-amortizing (interest-only periods, balloon structures, negative amortization) and require careful planning around the eventual full-payment requirement. Most residential mortgages today are fully amortizing for the borrower's protection.
Related terms
Other terms you'll see alongside Amortization
The portion of your mortgage payment that goes toward reducing the loan balance, separate from interest.
Any payment made toward the loan balance beyond the scheduled monthly principal amount.
A home loan whose interest rate stays the same for the entire repayment period.
A lump-sum prepayment toward principal followed by a recalculation of the monthly payment based on the new balance.
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