What Is Amortization In Real Estate?

Amortization is a way to pay off debt in equal installments that include varying amounts of interest and principal payments over the life of the loan. An amortization schedule is a fixed table that shows how much of your monthly payment goes toward interest and principal each month for the full term of the loan.

Fully Amortized Loans

A fully amortized payment is one where, if you make every payment according to the original schedule on your term loan, your loan will be fully paid off by the end of the term.

Positive Amortization

Lenders typically require a borrower to repay part of the principal with each loan payment to reduce their repayment risk. This results in the loan balance decreasing with each payment. This is called positive amortization.

Negative Amortization

Negative amortization is when a borrower is making the required payments on a loan but the amount they owe continues to rise because the minimum payment doesn’t cover the cost of interest.

Understanding how amortization works can give you great insight to the mortgage type that will work best for you and your family.

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