What is amortization?
Amortization means paying down your principal. You repay your loan in monthly installments. If you have a fixed mortgage (that is, an interest rate that remains fixed for the entire term of the loan), your payments will always be the same amount. Part of the payment goes toward the payment of the interest, and part toward the repayment of the money you’ve borrowed (the principal). The balance of the principal (what you still owe at any given time) is reduced with each payment. As a result, your monthly payment will pay the principal in increasing amounts over time. With a fixed interest rate, the amount of interest you owe will decrease as your principal balance decreases. You can create an amortization schedule for fixed loans when they are originated. This schedule will show how much of each payment will go towards interest and how much will go towards principal over the life of the loan. As your principal decreases, your equity in the mortgaged property increases. Equity is a very i
From http://www.bankrate.com/ You can define the term easily if you have a solid education in the basics of finance. You probably know what it is if you’ve bought a house once or twice. Or maybe you know sorta, kinda what “amortization” means, but not really. For an explanation, let’s turn to experts who promise not to bore you to tears. First up, we have Philip Russel, assistant professor of finance at Philadelphia University, who defines amortization as “the systemic payment plan — such as a monthly payment — so that your loan is paid off over the specified loan period.” So an amortized loan is for one specific amount that is to be paid off by a certain date, usually in equal monthly installments. Your car loan and home loan fit that definition. Your credit card account doesn’t because it’s a revolving loan with no fixed payoff date. That’s only part of what lenders mean when they talk about amortization. Chris Ed
(back to top) Amortization means paying down your principal. You repay your loan in monthly installments. If you have a fixed mortgage (that is, an interest rate that remains fixed for the entire term of the loan), your payments will always be the same amount. Part of the payment goes toward the payment of the interest, and part toward the repayment of the money you’ve borrowed (the principal). The balance of the principal (what you still owe at any given time) is reduced with each payment. As a result, your monthly payment will pay the principal in increasing amounts over time. With a fixed-interest rate, the amount of interest you owe will decrease as your principal balance decreases. You can create an amortization schedule for fixed loans when they are originated. This schedule will show how much of each payment will go toward interest and how much will go toward principal over the life of the loan. As your principal decreases, your equity in the mortgaged property increases. Equity
Amortization is what allows the majority of home buyers to purchase a house. Most homes are not paid for with cash, but with a loan, This loan’s payments are spread out over a number of years. Each payment’s comprised of two portions. One portion, called principal, goes toward the actual cost of the house. The portion goes to the loan fee and is called interest. Amortization is the schedule of how the entire principal and interest payments will be repaid. Some mortgages are amortized with the bulk of interest and only nominal principal being repaid during the first half of the loan. Then, during the last years, the payments apply more toward the principal than the interest. Amortization differs depending on the type of loan you choose for financing your home. Conventional loans and balloon loans are amortized differently, although the bulk of interest is generally paid prior to principal repayment in both types of loans. For more information on amortization, contact a real estate profe
An "amortization schedule," in general, is a record of loan or mortgage payments. This record includes the payment number, date, amount, breakdown of principal and interest, and the remaining balance owed after the payment. An amortizing loan’s periodic repayments contain an amount designated for the reduction of the principal, so that the balance will eventually be reduced to zero. The time necessary for the balance to reach zero is calculated in an amortization schedule.
What is Fixed Rate Amortizing Loans?
The monthly payments for interest and principal remain consistent and never change in fixed rates. The monthly payments will typically be stable even if property taxes and homeowners insurance increase. In a fixed rate-amortizing loan, the interest rate remains fixed for the life of the loan. The monthly payments remain level for the life of the loan and are prearranged to pay off the loan at the end of the loan term. An example of a fixed rate loan is a 30-year mortgage that takes 22.5 years of level payments to pay half of the original loan amount.
