Amortization
The schedule that splits each payment between interest and principal over the life of the loan. Early payments are mostly interest. Later payments are mostly principal.
Get the steps of a home sale by email, in order, one short email at a time.
Eight short emails, free. Unsubscribe any time. What's in them
Where this comes up: getting ready
Part 1 of 4
Why a seller cares
Amortization is why your payoff is higher than you expect early in a loan and lower later. The balance on your statement is the number that comes off your proceeds, and it drops slowly at first.
Part 2 of 4
A simple example
A $240,000 loan at 6.5% over 30 years. The payment is about $1,517 a month, and the split changes every month.
| Where you are in the loan | How the $1,517 splits |
|---|---|
| Month 1 | About $1,300 interest, $217 principal |
| Year 10 | About $1,040 interest, $477 principal |
| Year 25 | About $400 interest, $1,117 principal |
Selling early means paying off nearly all of what you borrowed, because the early payments were mostly interest.
Part 3 of 4
What people get wrong
That five years of payments knocked five years' worth off the balance. On a 30-year loan it is closer to a tenth of that.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
In your Room, this word explains itself where it appears.
Your Room defines amortization in the step you meet it in, beside the document or the date it belongs to. Free to set up, with an agent or on your own.
Organize my saleFree to set up. Pay once when you list: $89 or $189. 7-day refund.