Finance
What does loan 'amortization' mean in the context of a Pennsylvania residential mortgage?
AThe process of calculating the property's appraised value over the loan term
BThe gradual repayment of the mortgage balance through scheduled payments of principal and interest✓ Correct
CThe Pennsylvania mortgage recording tax assessed when a new mortgage is recorded
DThe prepayment penalty charged when a borrower pays off a mortgage ahead of schedule
Explanation
Amortization is the process by which a mortgage loan is gradually paid off through regular monthly payments that include both principal and interest. In early years most of each payment covers interest; as the balance decreases, more of each payment applies to principal. A fully amortizing loan is completely paid off at the end of its term — typically 15 or 30 years. Pennsylvania lenders provide borrowers with an amortization schedule showing the principal and interest breakdown for every payment throughout the loan term.
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