Mortgage Amortization Explained

Amortization is a true measure of what a borrower pays annually against a loan. A loan has a life — whether it's 15, 30, or even 50 years. You pay in installments, and the principal decreases (except in the case of interest-only loans, negative amortization and reverse mortgages) until the loan is paid off by the end of the term. The payments are evenly spread over the life of the loan, with the interest payments making up the majority of the payment at the beginning, and then principal paid off toward the end of the term. Pay attention to the amortization schedule, which shows the payments for the life of the loan including interest.