Amortization is the process of gradually paying off a loan over time through scheduled payments that cover both principal and interest. In most real estate and mortgage loans, each payment reduces the loan balance while also covering interest owed, with the portion applied to principal increasing over time. The loan is considered fully amortized when the balance reaches zero at the end of the term.
Example: A 30-year fixed-rate mortgage typically uses amortization, meaning the borrower makes equal monthly payments until the entire loan is repaid.
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