Definition
Amortization spreads your loan repayment across equal monthly payments over a fixed period (typically 15, 20, or 30 years). Each payment covers principal and interest—early payments are mostly interest, but principal accelerates over time as balance decreases.
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Find my pathAbout this term
Amortization spreads the total debt across the loan term so each payment covers both principal and interest. The amortization schedule shows exactly how much of each payment goes toward principal versus interest. Common mortgage terms are 15, 20, and 30 years.
Pro Tip
A shorter amortization period (15 years vs. 30) significantly reduces total interest paid, though monthly payments are higher.
Example
A 30-year amortization of a $300,000 loan results in 360 equal payments of approximately $1,799 (principal and interest only), with the final payment retiring the debt completely.