In terms of mortgage loans, what does "amortization" refer to?

Amortization refers specifically to the process of gradually repaying a loan through a series of regular payments that contribute to both the principal and the interest. This structured payment plan enables borrowers to repay their mortgage over a predetermined period, typically ranging from 15 to 30 years.

In an amortized mortgage, each payment made by the borrower reduces the total loan balance, while also covering the interest due for that payment period. At the start of the loan, a larger portion of each payment goes toward paying interest, with the proportion that goes toward the principal increasing over time. This method is advantageous for borrowers as it provides a clear timeline for when the loan will be fully paid off, fostering a predictable repayment scenario.

The other options do not accurately describe amortization. Increasing loan amounts over time pertains to features like adjustable-rate mortgages, immediate payoff of loans upon default relates to the consequences of missing payments, and loans with fluctuating interest rates are characteristic of variable-rate mortgages rather than amortization itself.