Define "amortization."

Amortization refers to the gradual repayment of a loan through scheduled payments that include both principal and interest components. This process systematically reduces the outstanding balance of the loan over a predetermined period. In residential real estate financing, amortization is crucial because it allows borrowers to understand how their payments are applied, ultimately leading to the full repayment of the loan by the end of its term.

The structured nature of amortization schedules also aids in financial planning, as homeowners can predict their payment amounts and the timeline of their debt payoff. Each payment goes towards both the interest due and the principal amount, which decreases the loan balance over time. This concept is fundamental in the financing of residential properties, as mortgages are typically amortized loans.

In contrast, the other options describe different financial activities or concepts that do not align with the definition of amortization. For instance, leasing property pertains to rental agreements, increasing property value relates to appreciation and improvements, and writing off expenses involves tax considerations rather than loan repayment. Understanding amortization is essential for anyone involved in financing residential real estate, as it directly impacts ownership costs and investment strategies.