When you’re taking out a mortgage loan to buy a home, you’ll have to become familiar with all the terms lenders use—and one of them is amortization.
What is Amortization?
The term amortization describes what happens when you pay off a debt (in this case, a mortgage loan) over time by making regular, equal payments.
With each mortgage payment you make, a portion of your money goes toward what you actually owe on the home—the principal. The rest of your money goes toward paying the lender interest for letting you borrow the money.
In most conventional loans, the largest part of the payment (at least for the first few years) goes toward interest. Eventually, it balances out so that you’re paying roughly equal amounts toward the principal and toward interest; finally, you’ll pay more on principal and less on interest. By the time you make your last mortgage payment, you’ll pay off your house—both the principal and the interest.
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