Amortization

Amortization is the process of gradually paying off a debt, such as a mortgage or a loan, over a set period of time through regular payments.

Each payment includes a portion of the principal (the original amount borrowed) and a portion of the interest (the cost of borrowing the money).

When you take out a mortgage, the lender will provide you with an amortization schedule, which shows how much of each payment goes towards the principal and how much goes towards the interest over the life of the loan.

In the early years of the loan, a larger portion of each payment goes towards interest, and as time goes on, a larger portion goes towards the principal.

The amortization period is the total length of time it takes to pay off the loan.

Shorter amortization periods result in higher monthly payments but lower overall interest costs, while longer amortization periods result in lower monthly payments but higher overall interest costs.