Amortization is the gradual repayment of a debt through scheduled installments that include both principal and interest. Most mortgages and auto loans are fully amortizing — the balance reaches zero at the end of the term.
How Amortization Works
Early payments are mostly interest; later payments are mostly principal. This happens because interest is calculated on the remaining balance, which decreases with each payment.
Amortization Schedule
An amortization schedule is a table showing every payment, the interest/principal split, and remaining balance. It helps you see exactly where your money goes each month.