What is Mortgage Amortization?
In the simplest of terms, mortgage amortization is the process by which a loan for the objective of buying a property is repaid. A mortgage loan, which is of course the largest debt that most of us will undertake to settle in our lifetime, is paid back through regular repayments throughout a givrn period of time. Most usually repayments are made on a monthly basis over a term between 25 and 40 years.
Mortgage amortization is a situation in which the principal balance on a mortgage declines over time as the borrower makes periodic payments. As a general rule, amortization is a very desirable state of affairs, because if a mortgage is not amortizing, it means that the borrower is not making any headway on the loan. Historically, most mortgages were designed to amortize automatically as long as the borrower made the minimum payments, although slightly different arrangements including negative amortization mortgages and adjustable rate or interest only mortgages have also been used. When a borrower takes out a mortgage, the bank sits down to determine the amounts of the periodic payments over the life of the loan. Each periodic payment must fully cover interest and include a proportion of the principal for the mortgage to amortize. The goal is for the mortgage to be fully amortized, a fancy way of saying “paid off,” at the end of the term of the loan. In a situation where mortgage amor
Mortgages can be very complex and confusing; with the different terms and regulations one might not understand how the whole process works. Mortgage amortization is one of those terms that most do not understand. Amortization is actually a term for overtime period of a loan by ways of payment. What is mortgage amortization? Simply put it as a payment plan whereby your loan is paid for over a specific time frame in equal installments. Most loans are based on this amortization table. Home loans and car loans are usually on this type of installment plan. Credit cards do not follow this because they do not have a fixed pay off date. Loan payment amortization is when part of the payment goes towards interest cost and the remainder goes towards the principle amount of the amount financed. Amortization interest rates are computed on the current amount owed and then become smaller as the ending balance of the loan reduces. In the beginning of a mortgage amortization loan, it seems that all the
Mortgage amortization is the act of repaying a loan that has been granted for the express purpose of purchasing a property. Actual amortization occurs through regular payments made over time. How Does Mortgage Amortization Work? The accounting period for mortgage amortization considers that there are 12 payment days in each calendar year. These days fall on the 1st of each month. The actual mortgage account commences on the 1st day of the month that follows the day your mortgage loan becomes active. The first payment you make is known as “interim interest” and occurs between the period of the day your mortgage becomes active and the day your account begins. Subsequent repayments for your mortgage loan begin on the 1st day of the month that follows. So, if we consider as an example that a 30 year mortgage of $200,000 at a 6% interest rate becomes active on 15th January, you will pay interim interest of $1199.12 for the period when your mortgage loan becomes active (15th January – 1st Fe
In short, mortgage amortization is the repaying of a loan that has been granted to someone for the purpose of buying a property. The repayment of the mortgage debt is carried out via regular instalments (usually monthly) over the course of a specified time period (usually twenty five years or above).
