Real Estate Finance
The process of paying off a loan through regular, scheduled payments that cover both principal and interest.
An amortized loan is paid off through equal periodic payments over the loan term. In the early years, most of each payment goes toward interest; over time, more goes toward principal as the balance decreases. After the full term, the loan is fully paid off. An amortization schedule shows exactly how each payment is allocated between principal and interest.
Exam Tip
Early payments = mostly interest. Later payments = mostly principal. The exam frequently asks which portion is larger at the beginning of a mortgage.
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Real Estate Finance
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