When you reduce the size of your loan through regular, periodic payments

When you make monthly payments that cover both the principal and interest, you are amortizing the loan. On the other hand, interest-only payments delay amortization since you never fully pay off the mortgage.

Example: How a loan amortizes over 20 years

$150,000 fixed rate loan at 7%

		Year	Monthly payment	Principal	Interest	Balance
		1	$1,039.69	$191.57	$848.12	$149,808.43
		5	1,039.69	251.11	788.58	139,218.76
		20	1,039.69	692.81	346.88	60,656.48
		The longer you hold onto your mortgage, the more of your monthly payment goes towards the loan's principal.

See: Amortization schedule
Compare: Negative amortization