Amortization is the process of paying a loan down to zero through fixed, scheduled payments. Each monthly payment first covers the interest that accrued that month; whatever is left chips away at the principal. Because the balance shrinks a little every month, the interest charge shrinks too — so early payments are mostly interest, and late payments are mostly principal.
Why it matters: in the first years of a long loan, only a small slice of each check actually builds equity. That is also why extra principal payments are so powerful early on — they jump ahead on the schedule and cancel all the interest those dollars would have generated over the remaining term.
The full table of payments is called an amortization schedule. You can generate one for your own numbers with our mortgage calculator, or dig into the math behind it. For a plain-English walkthrough, see mortgage amortization explained.