01 December 2008 15:53pm
Mortgage Amortization
Amortization is a term that is used for the reduction of a debt over a certain time by making monthly payments. A portion of this payment will usually be interest and another portion which reduces the outstanding amount of the actual debt.
The question you’re probably asking yourself is - what the heck does “amortization” mean?
Amortization is a term that is used for the reduction of a debt over a certain time by making monthly payments. A portion of this payment will usually be interest and another portion which reduces the outstanding amount of the actual debt. The monthly payments of an amortization remain the same over the life (period) of the loan.
In the early stages of the loan the actual principal repayment will be very small, whereas the interest rate will be very big, and in the later stages this process will be reversed.
Your mortgage will probably be the longest loan you will ever have; it could generally be as long as 15, 20, 25 or 30 years. The amortization is the actual “term” of the mortgage.
Generally, the shorter your amortization is, the less interest you will be paying back. For instance a 15 year mortgage has a much lower interest rate than a 30 year mortgage. So the wise thing to do is to amortize your mortgage over 15 years, as this could save you thousands of dollars over the years. But at the end of the day it is the monthly installment that needs to suit your pocket.
Please refer to our current mortgage rate page, to see what the current mortgage rate is
A car and home loan fits the definition of an amortization, because it has a fixed payment that will stay the same for the life of the loan, whereas your credit card payments will change monthly, because it is a revolving loan and has no set lifetime, or payoff date.
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