You may be hearing terms throughout the home buying process that are vaguely familiar or completely foreign. One term that you may have heard is “amoritization schedule“. Mortgage amortization refers to repaying a loan in equal installments.
These installments are made over a specified period of time. Although the payments are equal, the ratio between interest and principle varies a great deal over the life of your loan.
In the early years of a home loan, you are paying mostly interest with your installments. For example, you might borrow $100,000 on a thirty year loan at six percent interest. You will make 360 payments of $599.55 each month. In the first five to ten years the majority of your mortgage payment is applied to interest. In the second half of your loan term you’ll notice more of your payment shifting to principal and less to interest.
In summary, understanding mortgage amortization has to do with interest rates and how long the terms are. The longer the terms are, the lower the payments will be. However, you pay a great deal more interest with the longer loans.
Give me a call or email us if you have more specific questions about amoritization schedules.