What does "amortization" refer to in real estate?

Amortization in real estate specifically refers to the gradual repayment of a loan through regular payments that cover both principal and interest. This process is structured over a set term, typically seen in mortgage agreements, where monthly payments allow the borrower to reduce the principal amount owed until the debt is completely paid off by the end of the loan term. Each payment typically includes a portion that reduces the principal balance and another portion that pays the interest.

Understanding amortization is crucial for buyers and investors as it affects how much they will ultimately pay for a property over time.

In contrast, the other choices relate to different aspects of real estate. For instance, the collection of property taxes over time is a separate financial obligation, not linked to loan repayment. Appreciation refers to the increase in property value over time, a different concept from loan repayment. Lastly, the process of negotiating purchase prices pertains to the negotiation phase in a real estate transaction, which does not involve loan repayment or amortization mechanisms.