What term describes the process of reducing debt through periodic payments?

Amortization is the term that describes the process of reducing debt through periodic payments. This process involves making regular payments over a specific period, which cover both interest and a portion of the principal amount borrowed. As payments are made, the balance of the loan decreases, ultimately leading to the complete payoff of the debt by the end of the loan term.

In a typical amortization schedule, the initial payments consist of a larger portion going towards interest, while over time, a greater portion of each payment applies to the principal. This systematic reduction in the debt is designed to spread the repayment over time, making it more manageable for borrowers. Understanding amortization is essential for mortgage loan officers as it affects loan structuring and customer financial planning.

The other terms listed relate to different concepts in finance. Abandonment refers to giving up a property or asset without legal transfer. Abatement usually refers to a reduction or decrease, often related to taxes or nuisances, but not specifically to debt repayment. An acceleration clause is a provision in a loan agreement that allows the lender to require the borrower to pay the entire outstanding balance upon certain triggering events, such as missed payments.