What is Amortization?
Amortization is the process of paying off a loan over time through regular payments that cover both interest and principal. Early in a mortgage, most of each payment goes toward interest; over time, more goes toward the balance. An amortization schedule shows exactly how each payment is split until the balance reaches zero.
Example: Early in a 30-year loan, a $2,500 payment might apply $2,000 to interest and $500 to principal; twenty years later that split flips, with most reducing the balance.