What is amortization?

What is amortization?

• A. A method of valuing property by market comps.
• B. The process of paying property taxes.
• C. A type of closing cost.
• D. The gradual repayment of a loan's principal and interest over time.

Answer: (C)

Amortization is the gradual repayment of a loan's principal and interest over the term of the loan. With each payment, interest is charged on the current loan balance, and the remainder reduces the principal. As you progress through the loan, the interest portion of each payment typically decreases while the portion applied to principal increases, so the loan is paid off by the end of its term. An amortization schedule shows the breakdown for every payment and the evolving loan balance. This concept helps you understand how much total interest you'll pay and how loan term and payment amount affect how quickly the loan is repaid. It is not about valuing property by comps, paying taxes, or a closing cost.

Amortization is the gradual repayment of a loan's principal and interest over the term of the loan. With each payment, interest is charged on the current loan balance, and the remainder reduces the principal. As you progress through the loan, the interest portion of each payment typically decreases while the portion applied to principal increases, so the loan is paid off by the end of its term. An amortization schedule shows the breakdown for every payment and the evolving loan balance. This concept helps you understand how much total interest you'll pay and how loan term and payment amount affect how quickly the loan is repaid. It is not about valuing property by comps, paying taxes, or a closing cost.