What Is Mortgage Amortization?

Mortgage amortization is the gradual shift from paying mostly interest every month to paying mostly principal.
Holden LewisApr 18, 2019
what-is-mortgage-amortization

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

Mortgage amortization is how a home loan is paid down: The debt diminishes slowly at the beginning and then rapidly toward the end.

The gradual shift from paying mostly interest to mostly debt payment is the hallmark of an amortized mortgage.

Using a mortgage amortization calculator, you can:

"Amortization" is pronounced am-ur-ti-ZAY-shun. "Amortize" is pronounced AM-ur-tize.

When loan officers talk about amortization, they often mean the loan's term, or the number of years it will take to pay it in full. A "30-year amortization" and a "30-year mortgage term" mean the same thing.

» MORE:

Amortization is a repayment feature of loans with equal monthly payments and a fixed end date. Mortgages are amortized, and so are auto loans.

Monthly mortgage payments are equal (excluding taxes and insurance), but the amounts going to principal and interest change every month. Take the example of a $100,000 mortgage with an interest rate of 4.5%, amortized over 30 years. Monthly principal and interest would total $507:

A mortgage amortization table, also called a mortgage amortization schedule, is the easiest way to visualize the concept. The mortgage amortization table is a grid that displays the amount of each payment that goes toward principal and interest.

This excerpt of a mortgage amortization schedule shows what happens with the first payments on that 30-year mortgage for $100,000 with a 4.5% interest rate. In addition to detailing how much of each payment goes to principal and interest, it shows the remaining balance after each payment. With this loan, the balance is $99,202 after six payments.

An amortized mortgage means that the loan balance decreases gradually at first. That means your payments build equity slowly in the first years of the mortgage. The good news is that you build equity more quickly in the final years of the mortgage.

To accountants and business owners, "amortization" has other meanings, too. But for homeowners, mortgage amortization means the monthly payments pay down the debt predictably over time.

On a similar note...
Dive even deeper in Mortgages