What is the primary purpose of amortization?

The primary purpose of amortization is to systematically pay off a mortgage loan. Amortization is the process of spreading out a loan into a series of fixed payments over time, allowing borrowers to pay off the principal, as well as interest, in a structured manner. Each payment made during the amortization period contributes to reducing the outstanding balance of the loan until it is eventually paid off.

This method provides borrowers with a clear understanding of their repayment schedule, making it easier to budget their finances. As a result, amortization aligns payment amounts to the timeline of the loan, which is beneficial for both the lender and the borrower. The reduction of the loan balance over time through amortization ensures that borrowers gradually build equity in their property, contrasting with options like increasing loan principal or delaying interest payments, which do not support the goal of loan repayment.