we fix short term What is amortization? In basic, simple terms, it is a debt that
is repaid in equal installments with a definite payoff date. Things such
as car loans and mortgages can be viewed in this manner. However,
credit cards are not as they are a revolving loan with no definite
payoff date.
Basically, when you borrow money to buy your home, you agree to pay a certain interest on the amount. Your first monthly payment will actually go mainly towards interest with only a portion being put towards the principle amount of the loan. The beginning payments borrowers notice go mostly towards the interest with only a very small portion decreasing the principle.
we fix short term
As the payments progress, the amount of interest paid is lower and the amount paid on the principle is higher. Each month the interest amount is calculated on the principle amount due. As you continue to make payments you will see that the interest is going down and the amount applied to the total debt is increased.
For someone with an accounting or financial background, the term is easily understood. For the average person who is trying to calculate mortgage payments and so on, it can become a bit confusing. Many sites offer a mortgage calculator that will show you the breakdown of payments over the term of the loan, which may be helpful in understanding the way it works.
However, it is still difficult to understand without a simple explanation. The answer to the question what is amortization is not easily explained. For the most part, it is a fancy term used to describe the loan payments that are being made and the breakdown of those payments. When you can look at a schedule that points out each individual payment and how it is applied, it will become more clear to you.
we fix short term
Understanding the term itself is not as important as understanding how it works. When you take out a large loan like for your home or vehicle, you understand that you must pay interest on the total amount borrowed. What most do not realize is that the interest is calculated each month on the amount still due.
For example, if your total loan is 100,000 dollars at six percent interest, your first payment will be mainly towards interest, with a few dollars paid towards the principle. Your second payment the amount of interest will be based on the amount of the loan minus the amount that was paid in the prior months. Therefore, the amount attributed to interest will decrease and the amount attributed to the principle will increase.
Looking at an amortization schedule will help to demonstrate this for you more clearly. The calculation is not as simple as that, but by viewing the schedule you will be able to see the increase in the amount of the payment toward the principle and the decrease in the interest amount with each payment. As the loan matures, your principle payment gradually becomes the higher amount while the interest payment decreases.
Basically, when you borrow money to buy your home, you agree to pay a certain interest on the amount. Your first monthly payment will actually go mainly towards interest with only a portion being put towards the principle amount of the loan. The beginning payments borrowers notice go mostly towards the interest with only a very small portion decreasing the principle.
we fix short term
As the payments progress, the amount of interest paid is lower and the amount paid on the principle is higher. Each month the interest amount is calculated on the principle amount due. As you continue to make payments you will see that the interest is going down and the amount applied to the total debt is increased.
For someone with an accounting or financial background, the term is easily understood. For the average person who is trying to calculate mortgage payments and so on, it can become a bit confusing. Many sites offer a mortgage calculator that will show you the breakdown of payments over the term of the loan, which may be helpful in understanding the way it works.
However, it is still difficult to understand without a simple explanation. The answer to the question what is amortization is not easily explained. For the most part, it is a fancy term used to describe the loan payments that are being made and the breakdown of those payments. When you can look at a schedule that points out each individual payment and how it is applied, it will become more clear to you.
Understanding the term itself is not as important as understanding how it works. When you take out a large loan like for your home or vehicle, you understand that you must pay interest on the total amount borrowed. What most do not realize is that the interest is calculated each month on the amount still due.
For example, if your total loan is 100,000 dollars at six percent interest, your first payment will be mainly towards interest, with a few dollars paid towards the principle. Your second payment the amount of interest will be based on the amount of the loan minus the amount that was paid in the prior months. Therefore, the amount attributed to interest will decrease and the amount attributed to the principle will increase.
Looking at an amortization schedule will help to demonstrate this for you more clearly. The calculation is not as simple as that, but by viewing the schedule you will be able to see the increase in the amount of the payment toward the principle and the decrease in the interest amount with each payment. As the loan matures, your principle payment gradually becomes the higher amount while the interest payment decreases.
