In an amortising loan (mortgages, personal loans, most auto loans), each payment covers interest first and principal second. Early payments are mostly interest; later payments mostly principal.
Making extra principal payments early accelerates the schedule and cuts total interest dramatically. On a 30-year mortgage, even one extra payment a year can trim years off the payoff.
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What is negative amortization?
When a payment doesn't cover the interest, so the unpaid interest is added to the principal. The balance grows even though you're paying.
Related terms
Mortgage
A long-term loan secured by real estate, usually repaid over 15–30 years.
APR (annual percentage rate)
The yearly cost of borrowing, including interest and most fees, expressed as a percentage.
Minimum payment
The smallest amount you can pay on a credit card or loan without triggering a late fee.