Web Content Viewer

What Is Mortgage Amortization?

Understand How Lenders Determine Your Monthly Payments

Amortization is the process lenders use to apply your monthly mortgage payments to your principal balance and interest when it’s due. Your amortization schedule helps ensure that you have fully paid off your mortgage at the end of your loan’s term.

What Is an Amortized Mortgage?

An amortized mortgage means that the monthly payments are paid down predictably over time, with the loan balance decreasing gradually in the beginning.

What Is a Mortgage Amortization Schedule, and How Does It Work?

A mortgage amortization schedule displays the amount of each payment that goes toward principal and interest. It will also show you how your total balance will change after each successful payment. A mortgage amortization schedule typically requires the:

Total loan amount
Loan term
Interest rate
Minimum payment
Frequency of minimum payments
Principal and interest divide
Total balance after payment

Here’s an example of a mortgage amortization schedule for a $300,000 fixed-rate mortgage with a 30-year loan term and a 3% interest rate that is repaid monthly. A full amortization schedule for this loan would show 360 monthly payments. This example shows just the first six months:

Month	Minimum payment	Interest	Principal	Total balance after payment	Cumulative interest
1	$1,265	$750	$515	$299,485	$750
2	$1,265	$749	$516	$298,969	$1,499
3	$1,265	$747	$517	$298,452	$2,246
4	$1,265	$746	$519	$297,933	$2,992
5	$1,265	$745	$520	$297,413	$3,737
6	$1,265	$744	$521	$296,892	$4,481

In this example, you pay a little less in interest each month, because you are paying down the principal balance. As your interest costs decrease, more of your payment goes toward paying down your principal balance. The following month’s interest payment is based on the updated total balance.

What Is a Rapidly Amortizing Mortgage?

A rapidly amortizing mortgage is also known as a growing equity mortgage. A rapidly amortizing mortgage starts with monthly payments that increase over the loan term. The additional money in this payment is put toward the principal balance with the goal of paying off your mortgage sooner and potentially helping you pay less interest over the life of the loan.

What Is a Negative Amortization Mortgage?

If you make mortgage payments that are lower than the interest due that month, your total mortgage balance will increase. This is considered negative amortization. When the interest is not fully paid, it is added to the principal balance. The following month, the interest payment due will be based on the new and higher principal balance. Over time, borrowers with a negative amortization mortgage may end up paying more for interest over the life of the loan.

What Types of Mortgages Are Associated with Negative Amortization?

Loans that do not fully amortize or negatively amortize often require a final, large payment at the end of the term. These are sometimes called balloon payment mortgages and can be risky if you cannot afford the final lump sum payment.

Can I Reamortize My Mortgage?

Depending on your loan type and lender, you may be able to reamortize your mortgage. This is also called a mortgage recast. To reamortize your mortgage, you would need to make a large lump-sum payment that would lower the balance, influencing your interest rate. Reamortizing your mortgage with a lump-sum payment is one way to pay less interest over the life of your loan.

Speak with a Loan Advisor

Do you have questions about what your mortgage payment schedule will look like? Call one of our Loan Advisors at 877-220-5533 or get started with your mortgage prequalification online to learn more about your options.

Last reviewed and updated June 2024 by Freedom Mortgage.