What happens to the portion of your payment that goes toward interest over the life of an amortized loan?

In an amortized loan, the portion of your payment that goes toward interest decreases over time. This is due to the structure of amortization, which involves systematic payments that include both principal and interest over the life of the loan.

Initially, when you make payments, a larger portion goes toward paying off interest because it is calculated on the total outstanding loan balance, which is highest at the beginning. As you continue to make payments, the principal amount reduces, resulting in less interest being applied in subsequent payment periods. Consequently, as the loan matures, the percentage of each payment that applies to the interest portion decreases, while the proportion going toward paying down the principal increases. This pattern is typical for fixed-rate loans and is a foundational concept in understanding loan repayment structures.

In contrast, if the interest were to increase or remain constant, the portion applied towards interest would not behave as described in the context of an amortized loan. Fluctuating payments would suggest a variable interest rate or different loan structures, which is not applicable to standard amortized loans.