Amortization
Lending & MortgagesThe process of spreading loan payments over time, with each payment covering both principal and interest.
Example
Example: On a $300,000 mortgage at 6.5% for 30 years, your monthly payment is $1,896. In month 1, $1,625 goes to interest and only $271 to principal. By month 180 (year 15), the split reverses: $958 to interest and $938 to principal. By month 300, only $295 goes to interest while $1,601 reduces your balance. This is amortization in action — early payments are almost all interest, late payments are almost all principal.