September 21, 2016 nkad3

How Loan Amortization and Amortization Schedules Work

When it comes to loan amortization and amortization schedule, most mortgages that common home owners hold are amortized. Amortization essentially refers to the repayment of loan principal over time. When dealing with mortgages, the interest rate is factored in the loan amortization so that each payment is split between interest and principal payments. In the early parts of the amortization schedule it is common for majority of the payments made to be applied to the interest payments and the remainder towards the principal. The schedule itself, outlines the breakdown of each payment as well as the remaining balance or the loan/mortgage on any given payment date. In other words, in terms of loan amortization, the amortization schedule is a reference tool used by borrowers to determine how much interest and principal is paid by any given payment date as well as the balance that would remain on that date. Below is an example of an amortization schedule/table that shows just that:

 

Loan Amortization

 

When it comes to “Interest only” mortgages, there is no such thing as a loan amortization since all payments are applied to the interest. Whatever the balance of the mortgage is at the beginning of the loan will typically remain the same by the end of the term. Since this is the nature of Interest only mortgage/loans, a loan amortization schedule would not exist or be useful.

If you would like to learn more about loan amortization and/or amortization schedules, please feel free to contact us today!

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