What Is Mortgage Payment Amortization?
What is mortgage payment amortization? Mortgage payment amortization is when a part of a mortgage payment is used to reduce the principal amount owed on a mortgage. Partially amortizing loans and fully amortizing loans are basically the two types of amortization loans. There are both positive and negative aspects of each of these types of loans.
A partially amortizing loan is a mortgage payment amortization that is also known as a balloon mortgage. With this type of loan, part of the principal of the mortgage payment amortization is paid over the term of the loan. The remaining principal balance of the loan is due at the end of the term of the loan. When the loan becomes due, there is usually a large balance due. The reason that there is usually such a large balance due on these type of loans is because the loan payment amount is figured out as if the loan would be paid over a much longer period of time than it actually is. For example, a ten year loan may be amortized as if it were a twenty or thirty year loan. The positive side of this type of mortgage is that the mortgage payment amortization is small over the term of the loan. The negative side of this type of loan is that there is a large balance due when the loan comes to maturity. Many people choose this type of loan because of its small monthly payments.
A full amortizing loan is a mortgage payment amortization that is also known as a self liquidation loan. With this type of loan, the total amount of the loan is completely paid for by the time the term of the loan is over. The mortgage payment amortization reduces the amount of the principal owed on the loan gradually over the loan period. Only part of the mortgage payment amortization goes to the principal of the loan. The other part of the payment goes to pay the interest on the loan. Over time, the amount of money that goes to the principal of the loan increases and the amount of the payment that goes toward interest decreases. Even though the payments on this type of loan are usually larger than those of a partially amortizing loan, many people prefer this type of loan, because there is not a large sum of money due at the end of the term of the loan.