Amortization is the process through which a mortgage balance is gradually paid down through scheduled payments.
Principal and Interest
Principal reduces the amount owed. Interest is the cost of borrowing. Early in a standard amortizing mortgage, a larger share of the scheduled payment generally goes toward interest. As the balance declines, a larger share goes toward principal.
Amortization Schedule
An amortization schedule shows payment number, beginning balance, principal paid, interest paid, and ending balance.
Extra Principal
Depending on the loan terms, making additional principal payments may reduce future interest expense and shorten the effective repayment period.
Homebuyer takeaway: Amortization is the mechanism that gradually turns borrowed money into homeowner equity.
Sources
Fannie Mae Glossary
Fannie Mae Home Loan Basics