Amortization
The schedule by which a loan is paid off over time, shifting gradually from mostly interest to mostly principal.
Amortization is the process of paying off a loan through regular fixed payments, where each payment covers the interest due plus a bit of principal. Early in a mortgage, most of each payment is interest and little reduces the balance; over time the mix flips, and late payments are mostly principal.
Understanding amortization explains why making extra principal payments early has an outsized effect — every dollar of principal paid ahead of schedule eliminates all the future interest it would have accrued. An amortization schedule shows exactly how a loan shrinks over its life and how extra payments accelerate the payoff.
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