What is amortization?


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Updated: 12/23/2002 3:41 pm Published: 12/23/2002 3:41 pm


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 professional or a lender.

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