Procedure of reducing a loan in equal sized installments, with principal and interest payments, versus interest-only payments.

Generally, payments made during the first five to seven years of a mortgage go largely towards interest. As the loan matures, a higher and higher proportion of each payment goes towards the principal loan balance. These payment schedules, or amortization tables, can easily be calculated by yourself using just about any spreadsheet program out on the market.

Amortization can also be considered negative amortization if the monthly installments do not cover the total amount of interest payable during the month.

Amoratization is a mortgage where a portion of repayment goes towards the prinicipal owed, causing the balance to decrease. There are some loan products that are 'interest only' or 'negative amoratization' . These products allow the borrower a smaller monthy payment, but their loan balance does not decrease, and in some cases, causes the balance to rise.