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Making amortization payment? Get tips on loan payment amortization |
What is Mortgage Amortization?
Mortgages can be very complex and confusing; with the different terms and regulations one might not understand how the whole process works. Mortgage amortization is one of those terms that most do not understand. Amortization is actually a term for overtime period of a loan by ways of payment.
What is mortgage amortization? Simply put it as a payment plan whereby your loan is paid for over a specific time frame in equal installments. Most loans are based on this amortization table. Home loans and car loans are usually on this type of installment plan. Credit cards do not follow this because they do not have a fixed pay off date.
Loan payment amortization is when part of the payment goes towards interest cost and the remainder goes towards the principle amount of the amount financed. Amortization interest rates are computed on the current amount owed and then become smaller as the ending balance of the loan reduces. In the beginning of a mortgage amortization loan, it seems that all the payment is going towards is interest for the first several years of the loan. Month after month, the interest will be computed on the current amount due, and decreasing a bit of your principle amount.
Having an amortization payment schedule is a good way to keep track of how your payment is progressing, what is going towards principle and what is going towards interest. Most mortgage companies make the payment due on the first of every month, but with a grace period of 15 days. If the payment is made on or before the 15th day of the month, the payment is treated as if it was not late. If the payment is made after the 15th the interest amortization table will then not be accurate because the payment will be assessed a late charge usually equal to 4-5% of the payment. In order to get back on the regular amortization schedule, one must pay extra to offset the difference.
Home owners can elect to pay extra payments on their home loan. But need to be careful on what day they make that extra payment to knock down interest. Typically it is better to pay the extra payment when paying the installment on the first of the month. If the extra payment is paid in the middle of the month, it may not get credited till the next month, thus not having the same effect of depleting the interest amount since new interest has accrued on the interest amortization.
A major problem with the existing mortgage amortization is the absolute rigidity of the payment requirement. Skip a single payment and you accumulate late charges until you make it up. If you skip one month, you will need it make it up with two payments plus a late charge. Three of these missed payments may force you into foreclosure. Payment by amortization also prevents many borrowers from organizing their personal finances to pay on a timely manner. No one amortization plan will meet everyone's needs. Many borrowers who actively manage their family finances, however, are ill-served by the current amortized mortgage payment.
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Brokers, Agents and the Foreclosure Market
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