Finance
What is amortization in the context of a mortgage loan?
AThe process of increasing the loan balance over time
BThe gradual repayment of both principal and interest over the life of the loan✓ Correct
CThe process of calculating the property's appreciation
DThe lender's calculation of the property's loan-to-value ratio
Explanation
Amortization is the process of gradually paying off a mortgage loan through regular payments that cover both principal and interest. Early payments are mostly interest; later payments are mostly principal.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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