Mortgage Amortization

Mortgage amortization is a term used to define the process of paying off a loan over a particular predetermined period of time at a specific interest rate. The amortization of a loan involves paying off interest as well as a portion of the remaining principal balance owing during each payment cycle.

When a bank or other financial institution loans you money to pay off a mortgage it will calculate the entire amount of principle and interest that will be owed over the time. They will then divide it by the number of months you are paying off the loan and give you an idea how much you will owe each month.

In the process of mortgage amortization you will pay the most interest in the early years of your mortgage. This is the bank’s way of making sure that they get paid back first.

In order to pay your mortgage off faster and save yourself money it can be a good idea to decrease your amortization period.

Usually if you don’t ask for a short amortization period at the time you purchase your mortgage lenders will start you with a 25-year mortgage. If you keep the same amortization period every time you renew your mortgage, and pay only regular payments it can take a long time to pay off a mortgage. You should always be aware of exactly what you are signing each time you renew your loan. During mortgage amortization you will probably renew your loan several times with your lender and if you don’t change the amortization period your mortgage can sometimes end up costing you more than necessary.

Your amortization period will directly affect the amount of interest you pay over time so it’s important to shop around for the best deal before you get the pre-approval for your mortgage in writing. Remember the quicker you can pay off your mortgage, the better.