Rates & interest
Amortization
The process of paying off a loan through level payments that cover the interest due first and reduce the principal with the rest. Early payments are mostly interest; later ones mostly principal.
What does amortization mean?
On an amortizing mortgage your payment stays the same each month, but the split shifts constantly. Because interest is charged on the outstanding balance, the first years are mostly interest and only a sliver goes to principal.
As the balance falls, the interest portion shrinks and principal repayment speeds up — which is why the final years of a 30-year loan retire the balance far faster than the first.
An amortization schedule lays out that split payment by payment, and it's why paying extra principal early has such an outsized effect.
A Michigan example
Take a $285,000 loan — roughly the Michigan median home — financed over 30 years. In the earliest payments the large majority of each dollar covers interest, with only a small share reducing principal.
Because that split is so lopsided at the start, an extra principal payment in year one erases interest you'd otherwise owe for decades. The same extra dollar in year 25 saves far less, since little interest remains.
Common questions
Why is most of my early mortgage payment interest?
Interest is charged on the outstanding balance, which is largest at the start. So early payments are mostly interest and little touches principal — the split flips only as the balance falls over the years.
Does a 15-year loan amortize faster than a 30-year?
Yes. A shorter term forces more principal into every payment, so the balance falls far faster and total interest drops by more than half — at the cost of a higher monthly payment.
How can I change my amortization?
Pay extra toward principal, refinance to a shorter term, or make biweekly payments. Each pushes more money to principal sooner, shortening the schedule and cutting lifetime interest.
Related terms