What Is Mortgage Amortization?

The amortization of a mortgage is the length of time from the payment of the mortgage until the balance goes over the principal amount. Typically, the amortization of a mortgage is spread over 30 years. However, this is not a hard and fast rule and some people prefer shorter amortization periods. Generally, the longer the mortgage amortization period, the lower the monthly payments will be. This is because the lender will have less interest to recover and less risk from their investment which is laid out in the mortgage. However, even though the monthly payments are lower, the lender usually collects the interest considerably higher making the payments very high in the long run.

Mortgage Lenders

Keep in mind that mortgage lenders, especially banks will usually require the buyer to pay an extensive amount of closing costs, title insurance and property tax as well as finance charges. Interest on the entire loan is usually added to the whole balance of the sales price. If an amortization shot is made, the lender will combine the interest and the application fees to figuring out whether the buyer is able to afford the home or not. The time spent counting on if a buyer can truly afford to own a home is more than enough to deter many people from making this dream come true.

Mortgage Amortization

No Income Mortgage

However, a solution may be on the horizon. Some lenders are starting to allow their clients to purchase a home without having to assume all the costs of a traditional mortgage. Some mortgages are known as a No Income Mortgage (NIM), which is for homebuyers who have irregular incomes but possess a great deal of cash flow because of bonuses, dividends or tax refunds. Lenders are using this type of mortgage as a way to get around the need for a larger down payment. However, the downside of NIM mortgages is that homeowners are at a higher risk of defaulting on their loans.

Mortgage Amortization

For many people, paying off a lifelong mortgage is just something they’ll never get around to doing. However, some mortgage investors are now offering what is known as a Bi-weekly mortgage payment option, it might help you a lot with your mortgage amortization. This is where the lender combines the interest from the first payment of principal as well as from each of the following payments lasting an additional two weeks.

Mortgage Amortization

By incorporating these payments into the second payment of principal only one month sooner, the borrower is able to shave off approximately 10 years from a 30-year mortgage. This will result in a massive savings of approximately $100,000 in years worth of mortgage payments. This is efficient mortgage amortization.

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