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LSDefine
Simple English definitions for legal terms
direct-reduction mortgage
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A quick definition of direct-reduction mortgage:
A mortgage is a way to borrow money to buy a house or property. It's like a promise to pay back the money you borrowed, with interest, over a certain amount of time. There are different types of mortgages, like ones where you pay back the same amount each month, or ones where you pay less at first and more later. Some mortgages let you borrow more money later if you need it, while others don't. It's important to understand the terms of your mortgage and make your payments on time, or you could lose your house.A more thorough explanation:
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.