What is amortization?
Amortization is a means of paying out a predetermined sum (the principal) plus interest over a fixed period of time, so that the principal is completely eliminated by the end of the term. This would be trivial if interest weren’t involved, since one could simply divide the principal amount into a certain number of payments and be done with it. The trick is to find the right payment amount, which includes some principal and some interest. The math isn’t celestial mechanics, but it probably doesn’t come standard on the basic pocket calculator. For the curious, there’s a mathematical presentation (PDF) of the problem and its solution. I’ve done some additional work which shows how to calculate the principal remaining after a given number of payments, and how to amortize with an initial payment moratorium in this document. If you’re trying to find some original loan parameters for an amortization schedule in the process of repayment, there’s some additional math here which may help. This c
Amortization is the process that determines the equal, periodic payment which will repay a loan, including interest and principal, over the stated length of the loan. Generally, payments made during the first five to seven years of a mortgage go largely towards interest. As the loan matures, a higher and higher proportion of each payment goes towards the principal loan balance. Brenda Procter, M.S., Consumer and Family Economics, College of Human Environmental Sciences, University of Missouri-Columbia If you’d like to learn more about this and other personal finance topics, the University of Missouri offers ‘Personal & Family Finance,’ a correspondence course, through the Center for Distance and Independent Study (800-609-3727). Information about this course is available at http://cdis.missouri.edu/CourseInfo/DetailCourseInfo.asp?1985. Can’t Find Your Question Here? Try Searching Our Quick Answer Knowledge Base Last update: Tuesday, July 22, 2008 University of Missouri logo links to ht
Your amortization is the total length of time it will take you to pay off your mortgage. When you first get a mortgage it is usually amortized over 25, 30 or 40 years. This means that if you maintained those terms and payment periods, your mortgage would be paid off in that number of years. However, in most cases, your amortization period will not stay constant because different borrowing terms at each renewal vary the amount of interest charged over your amortization period. The length of time to pay off your mortgage will be determined by the interest charge, the loan amount and the amount of payment you make.
