Mortgage amortization is the process of paying off a home loan through regular, structured monthly installments over a set period. Each month's payment consists of both principal (the borrowed amount) and interest (the cost of borrowing).
How Amortization Compounds
Early in a mortgage's timeline, the majority of your monthly payment goes toward satisfying interest fees. Since the interest is computed based on your outstanding loan balance, the bank demands a larger portion of their yield upfront. Over time, as the principal balance decreases, less interest is generated, and a greater percentage of your monthly fee goes directly toward paying off the principal.
Strategies to Save Thousands
By adding even a small amount extra to your monthly payments (prepayments) directed specifically toward the principal balance, you can shorten the term of your home loan and save thousands of dollars in cumulative interest charges over thirty years.