I have talked about this before but I think it is worth revisiting after our talk last week about the prime rate.
A mortgage is a loan or debt that is secured by real estate. In some states it is also the word used for the lien that is put on the property to secure the debt.
Normally this loan is paid back over a specific time , like 30 years or 15 years, until the entire balance is paid back. Amortization comes from the French word for death so I guess you are killing off the debt by amortizing.
If it is a fixed rate loan the payment stays the same for the entire period of 30 years.
The payment itself has more interest upfront with a small portion of those dollars going to ay off the loan balance and over the years the payment goes more to principal than interest. Like a balance tipping towards more and more principal. Around year 15 the monthly payment goes almost 50% to principal and 50% to interest.
Let’s look at an amortization chart – here is a year by year and here is a month by month. See the breakdown?
A mortgage can also be meant as the mortgage payment and can include taxes and insurance portions so that the lender can pay those for you. They call that an impound account or escrow account.
Now that you saw the breakdown of an mortgage payback or amortization be sure to watch our mortgage minute about the 3 top ways to pay off your mortgage or kill the debt 5 years faster.