What is the term for a mortgage where the principal is paid down in equal installments resulting in lower interest payments over its term?

The term for a mortgage where the principal is paid down in equal installments, which leads to lower interest payments over its term, is commonly referred to as an amortizing loan. In this type of mortgage, each payment consists of both principal and interest, and the total payment amount remains consistent throughout the life of the loan. Over time, as the principal balance decreases, the amount of interest paid also diminishes, resulting in lower overall interest costs. This structure provides borrowers with predictable monthly payments and a clear timeline for when the loan will be fully paid off.

In contrast, a straight-line principal reduction loan typically features principal payments that remain constant, which means the interest portion will decrease over time, but the overall payment may oscillate. A balloon payment mortgage includes lower payments for a set period, followed by a large final payment, which does not provide the structure of equal installments over the term. Lastly, a loan to value mortgage refers to the ratio of the loan amount to the appraised value of the property, which does not pertain to the payment structure or how the loan principal is reduced.