Principal

Amortization

Amortization is the process of paying off a mortgage through regular monthly payments over a set period of time. Each payment is split between principal, which reduces the loan balance, and interest, which is the cost of borrowing. In the early years of a mortgage, a larger portion of each payment goes toward interest, with the balance gradually shifting toward principal over time. A 30-year amortization schedule, for example, spreads repayment across 360 monthly payments.

Interest Rate

The interest rate is the cost of borrowing money for your mortgage, expressed as a percentage of the loan amount charged annually. Your rate is determined by factors including your credit score, down payment, loan type, loan term, and current market conditions. Even a small difference in rate can significantly impact total cost over the life of the loan. For example, a 0.5 percent reduction on a $400,000 mortgage can save over $40,000 in interest over 30 years.

Equity

Home equity is the difference between your home's current market value and the amount you still owe on your mortgage. As you make payments and your home appreciates in value, your equity grows. Equity can be accessed through a cash-out refinance or home equity loan, and it serves as a key measure of your financial stake in the property. Building equity is one of the primary wealth-building benefits of homeownership.