In the context of a mortgage, what does 'amortization' refer to?

Amortization refers to the gradual reduction of the loan balance over time through regular payments. In a typical amortizing mortgage, each payment consists of both principal and interest, allowing the borrower to gradually pay off the debt. Over the life of the loan, a larger portion of each payment goes towards the principal, reducing the outstanding balance effectively. This systematic approach helps borrowers understand how much they owe at any point in time and ensures that the loan is paid off by the end of the term. The concept of amortization is crucial in understanding mortgage terms, payment schedules, and the overall financial planning involved in homeownership.