The gradual repayment of a mortgage by installments. As you pay back the loan, an increasing amount of each payment is applied to principal and a lesser amount is applied to interest. Amortization is also a process of spreading a cost that is incurred upfront over the term of the loan or life of the asset.
|Effective interest rate|
The effective interest rate is the mortgage cost on a yearly basis expressed as a percentage includes charges paid when closing the loan including compounded interest. Higher closing costs or more frequent compounding result in a higher effective interest rate.
|Graduated Payment Mortgage (GPM)|
A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.
|Shared Appreciation Mortgage (SAM)|
A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.