What does the term 'amortization' refer to?

Amortization refers to the gradual process of paying off a loan through scheduled, regular payments over a specific period. In this context, each payment typically consists of both principal and interest components. As the loan progresses, a larger portion of each payment goes towards reducing the principal balance, while the interest portion decreases over time.

This concept is fundamental in mortgage lending, as it affects how much a borrower ultimately pays in interest over the life of the loan and determines their payment structure. Proper understanding of amortization helps borrowers choose loan terms that align with their financial goals, as it impacts their monthly budget and the total cost of the loan.

The other options relate to different aspects of the mortgage process but do not accurately define amortization. Acquiring a new loan focuses on obtaining financing rather than the repayment process. Assessing property value pertains to appraisals and market evaluations, while closing a mortgage involves finalizing the loan agreement rather than the breakdown of payment schedules.