What is the difference between Amortization and Loan Term
Amortization is the process of paying off a debt by making periodic payments throughout the term of the loan.
Because your monthly mortgage payment is comprised of both Principal and Interest, although the payment amount may stay the same every month, each monthly payment is allocated differently between principal and interest.
At the beginning, each month you are paying mostly interest on the loan, with a small amount going towards payoff of the principal.
As time goes on, that small monthly amount allocated to principal, gradually reduces the principal; and as time goes on less of the payment is allocated to interest, and more is allocated to the principal.
The loan term can be different than the amount of time needed to amortize (full pay off) the loan. For example, that is “Amortized for 30 years, Due in 5 years”. That means the amount of the monthly payment would be the amount calculated for a 30 year amortization. At the end of five years, a balloon payment of the outstanding loan balance would be due.
Need more information? Call Joe Elizondo of Northeast Financial at 323-256-7833 or email Joe at neast-financial @ sbcglobal.net.
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