Question 1

How does amortization work?

Accepted Answer

Amortization divides each payment into two parts: principal (which reduces the balance) and interest (the cost of borrowing money). Early on, most of your payment goes to interest, but over time, more goes to principal.

Question 2

Do extra monthly payments help?

Accepted Answer

Yes, extra payments go directly to principal, which reduces total interest and shortens the loan term. Even a small extra amount monthly can result in significant savings.

Question 3

Why are interest payments higher in the early years?

Accepted Answer

This is how compound interest works. Because your balance is higher at the beginning of the loan, the interest portion of each payment is also higher. As the balance decreases, so does the interest portion.

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