Amortization is the process of gradually paying down your mortgage through regular monthly payments. Each payment is split between interest and principal—the amount you borrowed. Over time, this process has a direct impact on your home equity, which is the portion of your home you truly own (your home’s value minus your mortgage balance).
Early Years: Slow Equity Growth
In the early years of a typical mortgage, most of your monthly payment goes toward paying interest, not principal. That means your equity builds slowly at first—even though you’re making large payments, only a small part actually reduces your loan balance.
Mid-to-Late Years: Accelerated Equity Growth
As you continue making payments, a greater portion goes toward principal and less toward interest. This shift happens because interest is charged on your remaining balance, which gets smaller each month. In the final years of your loan, your equity increases much more rapidly with every payment.
Extra Payments Speed Up Equity Growth
If you make extra payments toward your principal, you’ll build equity faster. Even small additional payments can make a big difference over time by reducing your interest costs and shortening your loan term.
Key Takeaway
Amortization means slow equity growth at first, but much faster growth later. Understanding this process helps homeowners see the long-term value of steady payments—and how making extra payments can help you own your home sooner.