Skip to content

Loan Basics

Amortization

Amortization is how your loan gets paid off over time through regular payments. Early on, more of each payment goes to interest and less to principal. As the years pass, that flips, and more goes toward the balance. By the end of the term, the loan is fully paid off.

With a fixed-rate loan, your monthly payment stays the same, but the split inside it changes every month. At the start, you owe interest on a large balance, so most of the payment is interest. As the balance shrinks, less interest accrues, so more of each payment chips away at the principal. That’s why paying extra early can save a lot of interest.

An amortization schedule lays this out month by month, showing your balance dropping over the life of the loan. It also explains why a shorter term, like 15 years, builds equity faster and costs less interest overall, even though the monthly payment is higher than a 30-year loan.

Related terms

APR

APR, or annual percentage rate, is the yearly cost of your loan including certain fees, not just the interest rate. Because it folds in some closing costs, the APR is usually a bit higher than your rate. It's meant to help you compare loan offers on a more apples-to-apples basis.

Discount Points

Discount points are an up-front fee you can pay to permanently lower your interest rate. One point usually costs 1% of your loan amount. Points may be worth it if you keep the loan long enough for the monthly savings to outweigh the cost, but not if you'll move or refinance soon.

Conventional Loan

A conventional loan is a mortgage that isn't backed by a government program like FHA or VA. It often needs solid credit, but it can allow down payments as low as 3% and lets you drop mortgage insurance once you build enough equity. It's the most common loan type for many buyers.

Last updated: June 5, 2026

This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.

← Back to glossary

Ready to see what makes sense for you?

60 seconds. No credit pull. Real options.

Find Your Rate