Amortization and Paying Off Your Mortgage
Amortization is the banking term for paying off a loan over time. Understanding what it means and how it works can help you keep track of what you owe and where your money is going.
What is amortization?
Loan amortization is what we call the process paying off a loan over time. When you get a mortgage, you'll make a payment every month. At first, most of your payments will go toward interest. As the amount you owe gradually goes down, more of your payments will go toward principal. By making regular payments over the lifetime of your loan - also known as the amortization period - your balance will eventually reach $0. When it does, your mortgage will be amortized - meaning it's been completely paid off.
What does amortization look like?
Time is a big part of amortization. That's why your amortization schedule can be so helpful: a single payment might not seem like it affects your loan that much, but each one you make brings you one step closer to being mortgage-free.
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Want to pay off your mortgage faster?
The term of your loan might say 15 or 30 years, but you can pay it off sooner if you want to. By making extra payments on top of your regular monthly payment, you can lower the amount of interest you pay over your loan's lifetime. This means a larger share of your monthly payments will go toward your loan's principal - allowing you to pay off your mortgage earlier.See the difference extra payments can make