What Is Amortization?

Amortization is the process of gradually paying off your mortgage through equal monthly payments that cover both principal and interest over a set term, typically 15 or 30 years. In the early years most of each payment goes toward interest, but over time the split shifts so more goes toward reducing your balance.

For example, on a $300,000 loan at 7% over 30 years, your fixed monthly payment is about $1,996. In month one, roughly $1,750 covers interest and only $246 reduces your principal. By year 20, that flips—about $1,100 goes to principal and $896 to interest. Making even one extra payment per year can shave roughly four years off a 30-year mortgage and save tens of thousands in interest.

Key Facts

• Standard terms: Most mortgages amortize over 15 or 30 years
• Front-loaded interest: In year one of a 30-year loan at 7%, about 88% of each payment is interest
• Crossover point: Principal exceeds interest in your payment around year 18–22 on a 30-year loan at typical rates
• Extra payments: One additional payment per year can cut a 30-year loan to roughly 26 years
• Negative amortization: Some loan types can cause your balance to grow if payments do not cover interest due

Frequently Asked Questions

Why does so much of my early payment go to interest?

Interest is calculated on your outstanding balance each month. Because your balance is highest at the start, the interest charge is largest then. As you pay down the principal, less interest accrues and more of your payment reduces the balance.

How can I pay off my mortgage faster?

You can make extra principal payments, switch to biweekly payments (26 half-payments per year equals 13 full payments), or refinance to a shorter term like 15 years. Even an extra $100 per month on a $300,000 loan at 7% can save you over $80,000 in interest.