What does 'amortization' refer to in finance?

Amortization in finance specifically describes the method by which a borrower gradually repays a loan through regular payments over a specified period. Each payment made typically includes both principal and interest, where the principal is the original amount borrowed, and the interest is the cost of borrowing that principal. Over time, the portion of each payment that goes toward the principal increases while the portion that goes toward interest decreases, leading to the total exhaustion of the loan balance by the end of the amortization term.

This concept is particularly relevant in situations like mortgage loans, where borrowers will benefit from a clearer understanding of how their payments impact the total loan balance over time. The other options relate to different aspects of finance but do not accurately represent the definition and process involved in amortization. Selling property, property value appreciation, and down payments each pertain to different financial principles and processes distinct from loan repayment strategies.