What does the term amortization refer to?

Amortization specifically refers to the process of paying off a mortgage or other debt through regular, scheduled payments over a set period. Each payment typically includes both principal and interest, with the proportional amounts changing over time; initially, a larger portion of the payment goes towards interest, and as the loan is paid down, a greater portion goes towards the principal. This structured repayment schedule helps borrowers systematically reduce their debt, culminating in full repayment by the end of the loan term.

Other terms, such as large sum payments or refinancing, describe different financial concepts that do not align with the routine, methodical nature of amortization in managing debts. Similarly, while equity buildup is a result of amortization and involves increasing ownership in a property, it does not define the process itself.