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Mortgage Amortization Definition

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Your home loan’s amortization schedule is the breakdown of repayment necessary to pay off your mortgage loan. There are two parts to your mortgage payment: loan principle that pays down your balance and loan interest. Your amortization schedule shows you how much of your payment is applied to the loan principle and how much is paid to interest over time.

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Mortgage loans are front loaded with interest. This means in the beginning of your loan almost of all your payment is applied to mortgage with very little paying down the balance. At the end of your repayment schedule more of the payment is applied to principle than interest.

One of the disadvantages you should be aware of when refinancing your mortgage is that you will be starting your amortization schedule from the beginning every time you refinance. Refinancing slows the growth of equity in your home because most of your mortgage payments will be applied to loan interest. Still, mortgage refinancing can be advantageous if you are reducing your payment amount with a lower mortgage rate.

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