Amortization
mortgageAlso known as: mortgage amortization, loan amortization
Updated · Written and reviewed by Konstantin Iakovlev
Detailed explanation
In year 1 of a 30-year, $400K mortgage at 7%, your monthly payment is $2,661 — but only $327 reduces principal; $2,334 is interest. By year 25, $1,940 of each payment goes to principal and only $721 to interest. This "front-loading" of interest is why making extra principal payments early dramatically reduces total interest paid. Refinancing or selling resets the amortization schedule. 15-year mortgages save substantial interest because the payment composition tilts to principal much faster.
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