Amortization

On an amortizing loan your monthly payment stays level, but the split between interest and principal shifts over time. Early on, the balance is large, so most of the payment goes to interest and only a little to principal. As the balance shrinks, the interest charge shrinks with it, and more of each payment goes toward principal.

This is why the early years of a 30-year mortgage build equity slowly, and why paying extra principal early saves the most interest: every dollar of principal you remove stops accruing interest for the rest of the term. An amortization schedule lists each payment and shows exactly how the interest and principal split changes month by month.