Definition
The schedule by which a loan is paid off in equal installments. Early payments are mostly interest and barely touch the balance; the mix shifts toward principal over time, which is why extra payments early in a mortgage save the most.
Why it matters
Amortization explains the demoralizing early years of a mortgage: same payment, barely moving balance. It is also why extra principal in the early years quietly deletes years of future interest.
Example
On a $300,000 mortgage at 6.5% for 30 years, the payment is about $1,896. Of the first payment, roughly $1,625 is interest and only about $271 reduces the balance; twenty years in, that ratio has flipped.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.