Amortization

Amortization refers to the process of spreading out a loan into a series of fixed payments over time. You'll be paying off the loan's interest and principal in different amounts each month, although your total payment remains equal each period. In an amortized loan, your early payments primarily cover the interest. Over time, as your principal balance decreases, a larger portion of your payments goes toward paying down the principal. Common amortized loans include auto loans, personal loans, and traditional mortgages.