There are two ways to repay a mortgage:
Method 1 — The Demand Mortgage
The mortgagor repays specific amounts of principal on each payment date, plus interest on the outstanding principal. In this type of mortgage, payments will be gradually reduced over time as the principal is paid.
To illustrate this type of mortgage, a mortgagor is obliged to pay, for example, $100 towards the loan's principal every installment date. The mortgagor does so, and in addition pays interest on the amount of principal outstanding. Thus, while the principal portion of the payment remains fixed, the interest portion is reduced for each successive payment, which results in ever smaller payments, until the mortgage is paid off.
Method 2 - The Amortized Mortgage
This is the most common mortgage offered by institutional lenders. It requires payments in equal installments. Each equal payment is divided into principal and interest in different proportions over the life of the mortgage. For the first installments, most of the payment goes towards paying the interest. As the payments progress, the focus changes and more of the principal is paid.