What Is Amortization?
The schedule by which a loan is paid off in equal payments, with shifting principal/interest split.
Definition
Amortization is the process of paying off a loan through scheduled, equal payments over a fixed term. Each payment covers the same dollar amount, but the split between interest and principal changes over time. Early payments are mostly interest because the balance is high; later payments are mostly principal as the balance shrinks. An amortization schedule shows month by month how much of each payment goes where, and how much you still owe.
Example
A 30-year, $300,000 mortgage at 6.5% has 360 equal payments of about $1,896. Total interest paid: $382,633.