Definition
Loan amortization is how your mortgage payments are divided between paying off the loan's principal and interest over time. Early on, more of your payment goes to interest, and later, more goes toward the principal.
Understanding Amortization in Mortgages
Amortization is important when planning your mortgage payments. It appears in your loan documents and schedules. It helps break down your loan into equal monthly payments. Each payment covers some interest and some loan balance. Example: For a $100,000 loan at 4% over 30 years, your payment might be around $477. This way, you see how much goes to interest and how much reduces the loan. It's not a quick pay-off method; rather, it spreads payments evenly over time. Remember, amortization doesn't mean your payments stay the same if your interest rate changes.
