What Is Amortization?
Amortization is the process of paying off a loan through regular payments over time.
Each payment is split between principal (reducing your loan balance)
and interest (the cost of borrowing).
With a standard fixed-rate mortgage, your monthly payment stays the same, but the
split between principal and interest changes every month. Early payments are mostly
interest; later payments are mostly principal.
Why Extra Payments Matter
Extra payments go entirely toward principal, which has a compounding effect:
- Lower balance means less interest accrues each month
- More of each future payment goes to principal instead of interest
- Your loan pays off faster, potentially saving years
- The earlier you start, the bigger the savings
Strategies for Extra Payments
- Round up — Round your payment up to the nearest $100
- Biweekly payments — Pay half your monthly payment every two weeks (equals 13 monthly payments per year)
- Annual lump sum — Apply your tax refund or bonus to principal
- Raise-match — When you get a raise, put the difference toward your mortgage
Important: Before making extra mortgage payments, make sure you have
an emergency fund and no higher-interest debt (credit cards, student loans). Pay off
expensive debt first.
15-Year vs. 30-Year Mortgage
A 15-year mortgage has higher monthly payments but a lower interest rate and
dramatically less total interest paid. Use the loan term selector to compare: you
will often find that the total cost of a 30-year mortgage is nearly double that of a
15-year. The right choice depends on your cash flow and financial goals.