Final answer:
The arrangement by which a buyer assumes primary responsibility for an existing mortgage and agrees to make direct payments to the lender is known as Assumption (A). This differs from refinancing, prepayment, and amortization, which are alternative financial concepts relating to loans and mortgages.
Step-by-step explanation:
Understanding Mortgage Assumption
The correct answer to the question is A. Assumption. When a buyer assumes an existing mortgage, they take on the responsibility of making payments directly to the lender, rather than the original borrower continuing to make payments.
This arrangement is often utilized when a property is sold, and the new buyer qualifies to take over the existing loan under similar terms.
Mortgage refinancing (B) is a process where an existing mortgage is replaced with a new loan, usually to take advantage of lower interest rates.
Prepayment (C) refers to the paying off of a loan before its due date. Amortization (D) is the process of spreading loan payments over a period of time until the loan is paid off in full.
Understanding these concepts is essential for both lenders and borrowers in the primary loan market, where financial institutions make loans to borrowers, and in the secondary loan market, where loans are bought and sold between institutions.