What is Amortization?

Amortization Article


Amortization is the repayment of a loan over time. There are a variety of considerations that will help you strategically pay off your loan. A large asset, such as your home, has something called a useful life. This is the predicted number of years that your asset is useable before it depreciates. At the beginning of the amortization curve, your monthly mortgage payment goes mostly to the interest. The payments you make later in the loan typically go towards the principal loan amount which is further along the amortization curve.

Borrowers can use tools such as amortization schedules or amortization calculators to estimate their monthly payment and to determine how much of their payment is going towards interest or towards the principal. This can be a helpful indicator to determine how long it will take to pay off your home loan.

A helpful trick to pay off your loan sooner and assist in building home equity is to make additional payments to your monthly mortgage payment. When your loan payments do not cover the interest amount, it can cause negative amortization. The remaining interest due will then be added on to the principal amount causing the principal to increase and the amortization to be negative.

Here are the steps to how amortization works for first-time home buyers:

1. Receive your home loan from Hall Financial.

After your mortgage pre-approval and application are complete, these Michigan mortgage experts will guide you through the home loan process and set up your monthly payment to help you start your home equity journey.

2. Pay your scheduled mortgage payments over time.

Borrowers will continue to make periodic payments over the life of the loan. In the amortization curve, the beginning stages are usually dedicated to paying off the interest while the later stages are for paying off the principal amount.

3. Pay off your loan!

Once you fully pay off your principal loan, you are through with the amortized loan process! If you decide to refinance your home, the amortization process will begin again but our refinance experts will lead you through every step off the way.

For more information, chat with us at callhallfirst.com or give us a call at 866-Call-Hall.