Finance
What is 'amortization' in the context of a Rhode Island residential mortgage?
AThe process of converting an adjustable-rate mortgage to a fixed rate
BThe gradual repayment of a loan through scheduled principal and interest payments✓ Correct
CThe lender's process of appraising a property
DThe prepayment penalty on a mortgage
Explanation
Amortization is the process of paying off a loan over time through regular scheduled payments that include both principal and interest. With each payment, the principal balance decreases until the loan is fully repaid.
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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.
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.
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.
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.
Math Concepts
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