Washington State Real Estate Practice Exam 2025 – All-in-One Guide to Master Your Real Estate License!

Amortization specifically refers to the gradual payoff of a loan, particularly a mortgage, through a series of scheduled payments made over a set period. During this process, each payment typically covers both principal and interest, allowing the borrower to reduce the loan balance gradually until it is fully paid off by the end of the loan term.

The principal portion of each payment increases over time while the interest portion decreases, which means that in the early stages of the loan, a larger portion of the payment goes toward interest. As the borrower continues to make payments, more of the payment goes toward reducing the principal balance.

This structured repayment method benefits borrowers by providing a clear timeline for when the debt will be fully repaid, making budgeting and financial planning easier. Understanding amortization is crucial for borrowers to assess loan options effectively, as it affects the total interest paid over the life of the loan.

In contrast, the other options do not accurately define amortization. Adjusting interest rates relates more to variable mortgage products, property value increases pertain to market conditions rather than loan repayment, and taxation on property sales involves different financial concepts altogether.