Amortization is simply the fact that you are paying down the loan principal, not the type of interest calculation used (as opposed to, for instance, an interest only loan where you only pay interest, without reducing the principal for a number of years).
The type of interest used in mortgages is typically called “simple interest” (and is also the most common form of auto loan) – you pay the interest due as it comes due, and the remaining portion of your payment goes towards reducing the principal, so that the next year, you pay less towards the interest (as theres less principal to charge interest on) and more towards the principal.
Yes, you do pay the majority of the interest during the early period of the loan, but it is really 6% whether you keep it for 5 years or 25 – it’s just that at 25 years, you’ve paid down much of the principal, so theres much less interest to charge.
For example, on a 400K loan at 6%, your monthly payments are ~2400. During the first year, because you are paying interest on nearly the full 400K, your monthly interest comes to about 2000, and you’re only paying $400 of your payment to reduce the principal (at the end of a year, you’ve only paid down about $5K in principal). But, as the principal goes down, each year less and less goes towards interest, and more goes towards the principal. By year 25, you are down to $125K in principal, and each month of your $2400 payment only about $700 is going towards interest, and $1700 towards the principal.
This math though is why it saves a LOT of interest in the long run by making extra principal payments early in the loan. If you make the principal payments early in the loan, each $1 you put towards the loan saves you around $3 over the life of the loan. Conversely, if you wait til later in the loan, your $1 towards paying down the loan doesn’t save you much more than that dollar.
