Amortization describes how a fixed-rate mortgage is paid down over its term. Each monthly payment is split between interest (paid first) and principal (the remainder), but the proportions shift over time.

In the early years of a 30-year loan, most of each payment goes to interest because the outstanding balance is high. As the balance shrinks, more of each payment goes to principal — by the final years, almost all of every payment reduces the principal.

The standard formula is: M = P × r(1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate, and n is the total number of payments.