Loan Amortization

Loan Amortization is the process of repayment of a loan through regular payments over time. Amount payable for each period is calculated using the depreciation formula. Amount due for a borrower will vary depending on the types of loans Depreciation chosen by the person.

Loan Amortization: Various Options

Loan Amortization can be done in several ways:

Fully amortized: This type of loan amortization shall ensure that payments are distributed in a way that the entire loan is paid off at the end of the period. A 30-year fixed rate loan is a classic example of this type of loan amortization. It consists of 360 payments of equal amounts. Assuming that all the payments you would have finished with your loan obligation at the end of 360-months to make. Most hybrid adjustable rate mortgages (arms) are fully amortized loan payments are only for the first few years. Then vary the price is based on an underlying index.

Partially amortized: A balloon loan is one example. Partially amortized loan payments calculated as if the loan extends for a longer time than the actual period. Since depreciation is based on a longer life of the loan, the actual loan is not paid in full by the end of the period as a borrower continues to make regular payments. By the end of the lending period, you pay off the loan in full using your savings, refinancing or the proceeds from the sale of your property.

Delayed amortized: This type of depreciation can be applied to real or hybrid ARM. In these loans, borrowers pay only interest on the borrowed amount for a certain period. The principal of the loan is then amortized over the remaining term.

For example, the start of a period of five years interest only loan paid off (amortized) after interest is paid. If the loan period the loan was for 30 years, and payments of principal in the past 25 years. Payments on these loans is higher than the corresponding fully amortized loan. They will also usually a higher interest rate. Remember, most subprime lenders charge higher interest on a 0.25% interest only loan.