Simple English definitions for legal terms
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A direct-reduction mortgage is a type of amortized mortgage where the borrower makes equal monthly payments that include both principal and interest. The interest is calculated based on the remaining balance of the loan. This type of mortgage is also known as DRM.
For example, if a borrower takes out a $100,000 direct-reduction mortgage with a 5% interest rate for 30 years, their monthly payment would be $536.82. In the first month, $416.67 would go towards interest and $120.15 would go towards principal. As the loan is paid down, the amount of interest decreases and the amount of principal increases.
Direct-reduction mortgages are a popular choice for homebuyers because they allow for predictable monthly payments and the ability to build equity in the property over time.