Mortgage amortization describes how each scheduled payment is split between interest and principal. Early payments often contain more interest; the principal share usually grows as the balance falls.
Principal and interest
Principal is the amount still owed. Interest is the financing charge for that period. The payment formula keeps the scheduled payment level while the split changes over the life of the loan.
Why the term matters
A 30-year term commonly produces a lower scheduled payment than a 15-year term, but it can create more total interest. Compare both the monthly amount and total repayment before choosing a term.
What extra payments can do
An extra principal payment can reduce the balance faster and may reduce future interest. Check whether your lender applies extra money directly to principal and whether any prepayment rules apply.
- Keep a copy of the lender's amortization schedule.
- Test a one-time payment and a recurring extra amount.
- Include taxes, insurance and service charges in your household budget.
Frequently asked questions
Does an amortization calculator quote my lender's final payment?
No. It provides a principal-and-interest estimate. Your lender's documents control the final payment, fees, escrow and rounding.
Does paying extra always reduce the payment?
Usually it reduces the balance and future interest. The scheduled payment may stay the same unless the lender recasts the loan.