An amortizing loan is a loan where the borrower repays the loan's principal balance — the original amount they borrowed — plus the interest owed on the loan over time up to the maturity date, leaving no balloon payment. With an amortizing loan, payments are spread out in equal sums to be paid over the length of the loan term. Each monthly payment is composed of two parts:
Principal: The portion of the payment that goes toward the original amount borrowed
Interest: The portion of the payment that goes toward the cost of borrowing the money
The amount of principal and interest in each payment will be different as the loan matures because the amount of interest to be paid decreases as the principal gets paid down. To better illustrate how amortization works, you can use our mortgage calculator with the attached amortization schedule.