What is Mortgage Amortization?

Definition of Mortgage Amortization

Mortgage Amortization is the process of repaying a mortgage loan, usually using a consistent monthly payment.

Many years ago, mortgage lenders realized that as the cost of housing rose, the average person could not pay cash for real estate, and most needed a monthly payment that fit within their budget to to make owning a home affordable. Using the concept of amortization allows an individual to make a lower monthly payment, in favor of extended interest over a longer period of time.

When a mortgage payment is made, the payment will first be applied to the interest accruing on the loan, and then to the outstanding principal. As the principal amount decreases, the interest accruing between payments will also decrease, and thus, more of the monthly payment will be applied to the outstanding principal.


Mr. McGillicuddy has a $200,000 mortgage at 5% interest and a 30 year amortization period, with a payment of $1067.38. With the first payment, $824.78 will be applied to the interest accruing in the first month of the loan. The remaining $242.60 will reduce the principal amount of the mortgage to $199,757.40. In the second month of the loan, since it has a slightly lower principal balance, only $823.78 in interest will accrue until the payment is made.

A slightly higher amount will be paid to the principal, less interest will accrue on subsequent amounts. If payments are made timely, there principal will continue to drop, the interest between payments will also decrease, and more of the monthly payment will be applied to the principal. This will continue until the loan is paid off.

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Changing the Amortization of the Mortgage

Only a few things will change the amortization of your mortgage. A change in the interest rate on the mortgage can change the amortization, but usually, the monthly payment will increase to keep the amortization on schedule.

If a payment or payments are late, the amortization will lengthen, because the missed or late payment will cause additional interest to accrue. On the other hand, making an additional payment will shorten the amortization, since the additional payment will be used to reduce the principal. A reduced principal amount will result in less interest accruing. Some people will make an extra payment per year on their mortgage. The effect is that it will decrease the amortization by a number of years, allowing them to pay off their mortgage early.

If nothing changes with the frequency of the mortgage payments, such as early or late payments, then typically your amortization will not change for the duration of the mortgage term. Once the term has come to an end and the mortgage is up for renewal, it is possible to increase or decrease the amortization without penalty on the actual date of renewal.

When discussing your mortgage options, First Foundation Residential Mortgage Brokers will calculate different amortization scenarios to help you decide which payment fits best with your lifestyle and overall financial plan.

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Last updated Feb 11, 2019