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Complete glossary lessonNational exam concept

Amortization

Amortization is the scheduled reduction of loan principal through periodic payments that include interest and principal.

Official area

Financing

Knowledge cluster

Mortgage repayment

Learning sequence

Define, distinguish, apply, retrieve

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Exam purpose

Recognize the rule, then reject the nearest look-alike.

Georgia lens

Apply the state distinction only when the facts call for it.

Connected terms

Connected to 4 terms and one official content area.

What does Amortization mean in real estate?

Amortization is the scheduled reduction of loan principal through periodic payments that include interest and principal. In a fully amortized loan, the balance reaches zero at the end of the term.

How is Amortization different from the closest exam answer?

Amortization describes principal reduction. A balloon mortgage has a remaining balance due in a lump sum because payments do not fully amortize the loan by maturity.

What is the Georgia-specific rule?

The national financing rule applies in Georgia. Early payments on a level-payment amortized loan generally contain more interest and less principal than later payments.

Worked exam example

Scenario

Each monthly payment covers accrued interest first and applies the remainder to principal, gradually reducing the outstanding balance.

Decision rule

Amortization describes principal reduction. A balloon mortgage has a remaining balance due in a lump sum because payments do not fully amortize the loan by maturity.

What is the most common exam trap?

Trap correction

Equal payments do not mean equal principal reduction each month.

Memory cue: Equal payments do not mean equal principal reduction each month.

Original exam check

Apply the definition

Which statement correctly explains Amortization?

Mastery tracker

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Related terms to learn next

Balloon mortgage

A balloon mortgage requires a substantial final payment because the periodic payment schedule does not reduce the principal to zero by the loan's maturity date.

Promissory note

A promissory note is the borrower's written promise to repay a debt under stated principal, interest, payment, maturity, and default terms.

PITI

PITI stands for principal, interest, taxes, and insurance, the four common components included when estimating a borrower's total monthly housing payment.

Acceleration clause

An acceleration clause permits the lender, after a defined default and required process, to declare the entire unpaid loan balance immediately due rather than collect only the missed installment.

Recommended next complete lesson

Continue with Financing complete lesson. It places this term inside the full rule, worked examples, exam traps, and mixed practice required for mastery.
Previous termPromissory noteNext term Balloon mortgage

Amortization quick answers

Facts checked against the current PSI Candidate Information Bulletin and GREC sources. Editorial standards.

What is Amortization?

Amortization is the scheduled reduction of loan principal through periodic payments that include interest and principal.

What is Amortization commonly confused with?

Amortization describes principal reduction. A balloon mortgage has a remaining balance due in a lump sum because payments do not fully amortize the loan by maturity.

How does Georgia treat Amortization?

The national financing rule applies in Georgia. Early payments on a level-payment amortized loan generally contain more interest and less principal than later payments.