Amortization

Definition

The process of paying off a debt with regular, equal payments over a scheduled term. Each payment covers both interest on the remaining balance and a portion of the principal, with the interest share shrinking and the principal share growing over time. For a standard 30-year fixed mortgage, nearly 70% of an early payment goes to interest; by the final year, the ratio flips and almost all of it reduces principal. The PMT formula used by every mortgage calculator is a direct expression of amortization: P × (r × (1+r)^n) / ((1+r)^n - 1), where P is principal, r is the monthly rate, and n is the total number of payments.