What is amortization on a home loan?

Jumping into a mortgage process comes with a lot of big words that you don't normally hear on a daily basis. Unless you work at a mortgage company, of course. Luckily for you, we do. And we've made it our mission to help present you a breakdown of the typical terminology to help make you a mortgage pro well before you sign on the dotted line. Welcome to the beginning of the ABCs of Mortgage. If you've been wondering what is amortization on a home loan, get ready to take some notes.

What is amortization?

Amortization – it's an intimidating word that basically means spreading out your payments. When you buy a house and take out a loan, you will get an amortization schedule. Through this, you get to enjoy one of the perks of homeownership – payments toward a home, that generates equity for you. Make note that each payment is going toward both interest (the cost the lender is charging to offer you a mortgage) and the principal, to knock out what you actually owe on the home. Remember, repaying early often comes with a penalty.

What is an amortization schedule?

An amortization home loan schedule is the time period that has been set for when you'll make your payments, and the details regarding that. It will include:

• • • All payments over the length of the loan
    • When they're due
    • The interest amount
    • When you'll be able to pay off the balance

There are even mortgage amortization calculators, like the one from NerdWallet, where you can punch in numbers that may pertain to you. You'll be able to see a breakdown of what an amortization schedule could look like for you.

Can I make the schedule shorter or longer?

Why, yes. Yes you can. If you're at the beginning of the mortgage process, you can generally elect how long you want your loan payment term to be. 

However, if you already have a mortgage, you may still have the opportunity to elect a shorter or longer amortization on a home loan. If you're eligible to do a refinance loan, you'll have the choice to go with a different term. With our refinance options, you would be able to go from a 30-year schedule to 15 years instead. And vice-versa, of course.

What's the benefit to this, you may ask? It would shorten the life of the loan, and yes, it would probably mean a higher monthly payment in the meantime. However, you'll end up having less interest to pay, as you'll have less months to accrue it in. Meaning, an overall smaller amount that you're actually paying to finance your home.

Oh cool. Now what should I do?

Connect with your local loan officer. They'll be able to walk you through your financial scenario to see what you may qualify for. Not only that, but will be able to discuss the differences between a fixed-rate mortgage and an adjustable-rate mortgage, and how amortization may look differently between the two choices.

After discussing that and finding your best fit, you should be well on your way to happy homeowning. 

Contact a loan officer.