Insights
Insights for smarter expense management
Practical tips, user stories, and financial strategies that help you track expenses, organize your finances, and make better spending decisions.
Insights
Practical tips, user stories, and financial strategies that help you track expenses, organize your finances, and make better spending decisions.
What it is, how it works, and why it matters for your wallet
Amortization is one of those financial words that sounds complicated… but it describes something very simple: how you pay off a loan over time. Whether it’s a mortgage, a car loan, or even furniture financed over 12 months, amortization tells you how much of each monthly payment goes toward interest and how much actually reduces your debt.
Once you understand amortization, you understand how banks make money, why your loan shrinks so slowly in the beginning, and how you can save thousands by paying a little extra each month.
Let’s break it down step-by-step—no math degree needed.
Amortization = spreading debt payments evenly over time.
Every month you pay the same amount, but the composition of that payment changes.
Think of it as a seesaw:
Interest starts high → gradually goes down
Principal starts low → gradually goes up
But your monthly payment stays the same.
Because interest is always calculated on the remaining loan balance.
Here’s a simple example:
So the bank takes €1,000 and only €432 goes toward paying down the house.
This is how mortgages work everywhere.
Early years = you mostly pay the bank
Later years = you finally start paying off the house
Think of each monthly payment as a sandwich with two layers:
At the beginning, the sandwich is almost all interest.
At the end, the sandwich is almost all principal.
But the sandwich is always the same size (your monthly payment stays the same!).
An amortization schedule is a table that shows every payment in your loan from the beginning to the end.
Each row tells you:
It looks something like this simplified example:
MonthPaymentInterestPrincipalRemaining Balance1€1,432€1,000€432€299,56812€1,432€966€466€294,59460€1,432€793€639€273,900120€1,432€597€835€239,000360€1,432€5€1,427€0
Notice how interest slowly disappears while the principal grows.
That’s amortization in action.
It affects your life in big ways:
A €300,000 mortgage at 4% costs over €515,000 over 30 years.
That difference—€215,520—is interest.
Even €100 extra per month can save tens of thousands in interest.
Why?
Because you reduce the loan faster, and future interest is calculated on a smaller amount.
If rates drop and you refinance, you restart amortization—with lower interest.
Many people think they own half their house after 10 years.
In reality, they own about 20%.
If you remember these five points, you understand amortization better than most adults.
Think of your mortgage like a big snowman made of debt.
Month 1:
You chip off a tiny snowball (principal), and the sun melts a little (interest).
The snowman barely shrinks.
Year 10:
You chip off bigger pieces each month, the sun melts less, the snowman shrinks faster.
Year 30:
You’re smashing big chunks off each time—the snowman disappears quickly.
Amortization is simply the pattern of how fast the snowman melts.
Amortization might sound like a boring financial term, but it affects:
Knowing how it works helps you make smarter decisions, avoid debt traps, and save money over the life of a loan.
And now you understand it—in the simplest possible way.
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