Amortization and the power of extra payments
See how a little extra each month quietly removes years of interest.
Because interest is charged on the outstanding balance, anything that lowers the balance faster saves disproportionately. That is why prepayments are the most effective lever most borrowers ignore.
Extra payment savings
Why it works
In the early years, most of each scheduled payment is interest. An extra payment skips straight to principal, so it permanently removes all the future interest that principal would have generated. The earlier you start, the larger the effect.
Frequently asked questions
What is amortization?
Amortization is the schedule over which your mortgage is fully repaid through regular payments. Each payment covers interest first, with the rest reducing principal.
How do extra payments help?
Extra payments go straight to principal, which reduces the balance interest is charged on. Even small regular extras can cut years and tens of thousands of dollars off the loan.
Is a shorter amortization better?
It raises the monthly payment but greatly reduces total interest. If you can afford it, a shorter amortization or regular prepayments save the most.
Are there prepayment limits?
Many mortgages allow prepayments up to an annual percentage of the original balance without penalty. Check your prepayment privileges before making large lump sums.
What is the difference between term and amortization?
Amortization is the total repayment period (e.g. 25 years). The term is the length of your current contract (e.g. 5 years), after which you renew at new rates.