What is the term used to describe the reduction of the balance owed on a loan with each payment made over a period of time?

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The term used to describe the reduction of the balance owed on a loan with each payment made over a period of time is amortization. Option A, buy-down, refers to a process where the borrower pays extra points at closing to reduce the interest rate on the loan. Option B, shared-appreciation, is a type of mortgage agreement where the lender shares in a portion of the appreciation value of the property. Option C, prepaid interest, refers to interest that is paid in advance and is usually an option for borrowers who want to lower their monthly mortgage payments. Option E, a rate cap, is a provision in an adjustable-rate mortgage that limits the amount by which the interest rate can be increased.

What Is the Term Used to Describe the Reduction of the Balance