(1.) The repayment of principal from scheduled mortgage payments that exceed the interest due. The loan balance declines by the amount of the scheduled payment, plus the amount of any extra payment.

(2.) The process of decreasing or accounting for an amount over a period of time.

(Loan Amortization Calculator - Here is a Loan Amortization Calculator from Yahoo)

  Bankapedia's Take

All excited about your low mortgage and fancy new house- well if you want that smile wiped off your face, just take a good long look at your amortization schedule. While fixed interest loans- like your standard 30 yr fixed- claim to be "fixed" in reality they are not. The amount of principal and interest you pay every month varies. During the initial few yrs only about 20% of your payment goes towards principal, the rest to, you guessed it, interest. This is done because the bank has no guarantee that you will stay in your 30 yr loan for 30 yrs.

Base on 30 yr fixed /  $185,000 Mortgage @ 6.5%

A few things to take notice of- in the first 5 yrs of the mortgage - look at the principal payments vs. Interest

First 5 yrs  2009 - 2013 the borrower will pay about $11,500 or 6% of the total mortgage                                                                                                                                          vs.                                                                                                                                                          Last 5 yrs 2034 - 2038 the borrower will pay about $59,500 or 32% of the total mortgage

So despite being called a fixed interest loan- the percentage of your payment going towards principal changes every singe month. The bank knows almost no one stays in their mortgage long enough to get to the final yrs when you really start paying of the mortgage.