Glossary
Amortization
Amortization is the process of paying off a loan through regular installments that cover both principal and interest. Early payments are mostly interest; later payments are mostly principal.
Why it matters
Understanding amortization reveals a frustrating truth: in the first years of a 30-year mortgage, most of your payment goes to interest, not equity. This knowledge motivates strategies like extra principal payments, which can shave years off a loan and save substantial interest.
Example
On a $250,000 mortgage at 7% for 30 years, your first payment of $1,663 splits roughly $1,458 to interest and only $205 to principal.
How Ray helps
Ray can analyze your loan payments and show how much is going to principal vs. interest each month. Ask to understand exactly where your money is going.
$ ray "how much of my mortgage payment goes to interest?"Related terms
Mortgage
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral.
APR (Annual Percentage Rate)
APR is the yearly cost of borrowing money, expressed as a percentage.
Debt-to-Income Ratio
Debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income, expressed as a percentage.
Compound Interest
Compound interest is interest earned on both your original principal and on previously accumulated interest.
Net Worth
Net worth is the total value of everything you own (assets) minus everything you owe (liabilities).