Understanding Amortization in Real Estate

Amortization is a term often used in the real estate world, but what does it actually mean? In the simplest terms, amortization refers to the process of paying off a debt, usually a mortgage loan, over a set period of time through regular payments. A portion of each payment goes towards the loan's interest, with the remainder going towards the principal. Over time, the interest portion decreases while the amount that goes towards the principal increases. Knowing how amortization works can help you understand how your mortgage payments are structured and how much of your payment is actually going towards reducing the balance of your loan.