What is Amortization?
What is amortization? It is the gradual elimination of debt, such as
a mortgage loan, by making scheduled payments of principle and
interest which are sufficient to pay off the mortgage loan by the
maturity date (example - a 30 year fixed loan would "mature" and be paid
off 30 years after your first scheduled payment).
You could also say, it details exactly what percentage of your
payment goes towards principle and interest each month over the life of
the loan. Most amortized mortgage loans take more than half of the
life of the mortgage loan or longer for the principle and interest
payments to become equal.
Some people choose to pay additional amounts towards principle each
month, with every extra dollar helping to reduce the cost and length of
the mortgage loan considerably. Remember to always clearly
instruct your lender to apply the additional sum directly towards
principle or they may apply it towards interest.