Amortization- A loan repayment plan

Sam

Mortgage amortization is essentially a loan repayment plan or schedule. It facilitates the removal of the debt burden of the borrower over a certain fixed period of time by making monthly/periodic payments. The payments made through regular, periodic installments comprise of the monthly interest (including accrued interest on the outstanding debt) and a chunk of the principal balance i.e. a portion reducing the outstanding amount of the actual debt. The amount of monthly (periodic) payments remains the same over the life of the loan.

In the early stages of the period (life) of the loan the actual repayment towards principal will turn out to be very small while that towards interest payment will be very big. In the later stages, however, this case will be reversed.

Amortization involves the 'term' of the mortgage or 'spread' of the repayment schedules over a period of time. A mortgage can well be the longest loan to be taken, meaning, it spreads over the longest period in the process of getting repaid. Mortgages could even elongate to 15, 20, 25 or 30 years. Normally, the shorter the term involved in amortization the lesser the interest one has to pay back. So, amortizing one's mortgage over a lower term might seem plausible. However, it must be remembered that the monthly installments to be paid in case of mortgages amortizing over a shorter period also need to suit one's financial position and earnings/incomes.

Car loans and home loans well conform to the amortization norms because each of them has a fixed payment schedule remaining the same for the life of the loan. Credit card payments, on the other hand, involve a revolving loan and have no definite lifetime or payoff date and change on monthly basis.

Related Articles

Calculate it yourself

Amortization Calculator

Guest 0.10 Dollars($)

I am trying to figure what the payoff on my loan will be in 2009. Loan amount is 20000, 16.25% int., payments are $338.91 a month.

blue · Posted: Mon Feb 20, 2006 3:00 pm Post subject:

Hi Trudy,

According to the figures provided the monthly instalment in this part of the year in 2009 should be $705.61.

You may take the help of the amortization calculator of this site to calculate it yourself too.

Regards,
Blue

Guest 0.10 Dollars($)

What would the monthly payment be on a $500,000 loan for ten years at 10% interest?

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Janey,

I have given you the answer of your same question at- http://www.mortgagefit.com/know-how/monthly-payment.html
You can check it out.

Feel free to ask if you have further question.

Thanks,
Larry

Guest 0.10 Dollars($)

Cool site! Helpful topic! Smile

lisascherzer · Joined: 04 Jan 2008 Posts: 749 0.10 Dollars($)

Hi Janey,

Your payment would be 6,607.54. Why is the rate so high?

All times are GMT - 7 Hours

Page 1 of 1