What does amortization involve?

Amortization refers to the process of gradually repaying a loan over a specified period, which is typically done through regular payments that cover both principal and interest. In the context of loans, it breaks down the payment schedule into fixed installments, allowing the borrower to systematically pay off the loan balance. As each payment is made, a portion goes towards reducing the principal amount, while another part covers the interest charged on the outstanding balance.

This process ensures that by the end of the loan term, the entire amount borrowed has been repaid, and it provides clarity and predictability for borrowers in managing their finances. Understanding amortization is crucial in real estate transactions, as it impacts how mortgage payments are structured and how equity in the property builds over time.