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Loan Amortization – Determining Your Monthly Payment

Loans are very much available everywhere. There are lots of financial institutions offering different kinds of services like car loans, home, loans, and medical loans and so on. If in case you’ll have cash shortages, you can always go to a nearest lender and apply. The application process is getting easier and faster.

Thanks to modern technology, you can even apply online. With just a few clicks, you will immediately know whether your application has been approved or not. But before you go running to a lender, you must be aware about loan amortization. Remember, you are borrowing money in here.

Therefore, you have the responsibility to pay your lender every month until you pay the full amount. It’s advisable to assess first whether you can afford to avail or not. To avoid some debt problems in the future, you must determine the total cost of the loan. For example, you want to obtain $5000 of personal loan. However, you will not only pay the whole $5000 but interest as well. The hard part actually in obtaining loans is in terms of the monthly installment. You must first ask yourself if you will be able to raise the money for the payment.

The loan amortization is actually in the form of a schedule. The loan amortization schedule will exactly give you the necessary information you want like the amount you need every month. The monthly payment basically comprises the reduction in the principal plus the interest payment. The three factors that are very important in the computation of the loan amortization are interest rate, loan amount and the agreed period. It is essential to look for a loan with the lowest interest rate. Actually, the rate will depend on a lot of things like your credit history, down payment, your income and others.

You can negotiate for a lower interest if you have a good credit score or you can provide a down payment. The interest plays a vital role in procuring loans. It can either do well to your finances or it can give you troubles in the end. There are some cases where borrowers can’t pay their loans anymore because the interest rates are too high. It’s important to look for loans with an interest rate you can afford. Another thing to consider is the loan amount. The higher the amount you want to avail, the higher the amount you will be paying every month.

To make paying not burdensome, try borrowing an amount which is within your budget. The loan period is also as important of the two. If you will opt for a longer period of time, you will be paying much interests but the monthly installment is quite affordable. On the other hand, a shorter period entails higher monthly payments but you can save a lot for interests. Basically, it’s your decision. That’s why it is an essential thing to understand loan amortization in order to make loans advantageous on your part and not a trouble on your finances. The monthly payment should not pose a burden but just part of your monthly expenses.

By: Rick Goldfeller

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Posted in Finance · September 30th, 2008 · Comments (0)

Negative Mortgage Amortization, Things You Must Know – Do Not Take a Home Loan Before You Read

A negative amortization loan is a loan where the monthly payment does not decrease your loan principal. In other words the payment being made doesn’t pay back the principal on the loan. In fact the payment being made doesn’t even cover the minimum monthly interest payment. As a result your home mortgage will increase overtime.

How does it work?

Well, your monthly payment is composed by the loan amount, interest rate, and the years that the loan will be paid back. Normally a mortgage payment will include sufficient money to be applied towards interest and principal, in order to effectively reduce the balance on the loan. In a negative amortization, you don’t even pay enough to cover the interest being charged by the bank.

What does negative amortization mean to you?

Since the payment in a negative mortgage doesn’t even cover the minimum interest charge, the amount that wasn’t paid gets attached to the principal balance (loan balance will increase with every payment). In other words, every time you make a negative amortization payment it’s like you’re taking out another loan on your home. When you amortize a loan it simply means that you’re paying it off, therefore the name negative amortization is given to this particular situation.

What is the practical use of a negative amortization?

The main purpose of this type of amortization is flexibility in payments. This type of amortization was designed with a certain type of borrower in mind. Normally this is a type of payment that is suggested for people without regular income, such as commission employees and business owners. The idea is that people without regular income might have a down month where making a full payment is not likely to happen, instead of missing a payment they would have the option to apply the minimum amount, avoid missing a payment, and add the rest to the back of the loan. On the opposite side, if they have a good month then making a bigger payment is also possible in order to catch up on the negative amortization months, thus allowing the borrower to pay off the principle balance.

Keep In Mind:

This type of amortization is not for every home owner, as time goes on and more negative amortization payments are made, the larger the amount of money that will be owed by the borrower to catch up the loan.

By: Alberto W Garcia

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Posted in Real Estate · September 25th, 2008 · Comments (0)

Mortgages: What is the Difference Between Term and Amortization

When you arrange a mortgage to help you with the purchase of a property, you will negotiate the details with your lending institution. Two of the items you will decide on will be term and amortization.

The term of your mortgage will be the length of time that you will be “locked in” to certain payments at a specific interest rate. For example, if you choose a “5 year closed mortgage term”, this means that you will have mortgage payments of a certain amount for 5 years. At the end of 5 years, you will have to either pay the remaining amount owing to your mortgagee*, or renegotiate your mortgage. This length of time is usually between 6 months and 5 years, although there are some lending institutions that will offer mortgage terms of 7 or 10 years.

If you choose to either renegotiate your mortgage or pay out your mortgage before the end of your term, you may have to pay a penalty, depending on the agreement contained in your Standard Charge Terms*.

The amortization of your mortgage is the length of time that it would take you, at your current payment and interest rate, to pay your mortgage in full. This amount of time is usually 20 or 25 years, when you first arrange your mortgage. As you progress through the years of payments on your mortgage, if you keep your payments similar, the amortization of your mortgage will decrease.

Let’s say you have arranged a mortgage with a lending institution for $150,000.00 for a 5 year term at an interest rate of 6.5%, with an amortization of 25 years. You have agreed to make monthly payments of $1,004.74 on the 1st day of every month. At the end of 5 years, you renegotiate with your lending institution. They will continue to hold your mortgage for an additional 5 year term at the same interest rate. By keeping monthly mortgage payments of $1,004.74, you now have an amortization of 20 years.

* For a more detailed description of these mortgage terms, read the article, “Common Mortgage Terms”.

By: Barb Asselin

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Posted in Real Estate · September 6th, 2008 · Comments (0)

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