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DEAR TZ – WHAT DOES AMORTIZATION MEAN?

Dear TZ,

My brother in law said I can save a ton of money if I amortize my loan on my house. What does that mean, and does it work?

Thanks,

Borrower BertFile:USCurrency Federal Reserve.jpg

Dear Bert,

Very simply put amoritization is the process that the principal amount of your mortgage decreases over the life of your mortgage.  So each payment that your make, a portion is applied towards the interest on the loand and a portion is appliec to reducing your principal.

So by paying more than the set amount or paying twice a month, you can apply the excess amount to your prinicpal reducing the amount of time it will take to pay of your mortgage. And yes, it does work to decrease the LENGTH of your loan.

An ammortization table shows how your principal is paid off over time.  Your mortgage provider or REALTOR(R) should be able to give you an ammortization table or ammortization calculator to see how your mortgage is ammortizing.

You should definitely talk to your mortgage rep and even your accountant before making any changes as to how you are paying off your mortgage.

Best of luck!

– Wayne and Jean

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Comments on: "Dear TZ – What does Amortization mean?" (1)

  1. Thanks for sharing this post with us. It’s really an amazing post. Keep posting the good work in future too.

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