Put simply, yes. Mortgage loans are actually one of the most common kinds of amortized loans that exist on the market today.
When it comes time for you to decide that you would like to buy your own house, there are many details that need to be taken into consideration. For one thing, if you decide to use a mortgage, it is important that you consider your options.
An important detail to know is whether mortgages are amortized. Luckily, MaxCash is here to explain a bit more about amortization and how it does or does not apply to mortgage loans.
What is Amortization?
Before we go into whether mortgage loans are amortized, let’s first discuss what amortization is. Amortization is simply the process of spreading out the repayment of a loan into several fixed payments over a set period of time.
With amortization, you will be paying the exact same amount of money each and every month. A percentage of your payments will go toward the principle and the percentage that goes toward the interest will gradually shift over time.
Mortgage Loans and Amortization
The standard mortgage loan was actually created in 1934, by the Federal Housing Act, or FHA for short. This government act made it possible for millions of Americans to be able to afford home ownership by introducing what is now known as the 30-year fixed rate loan.
What this means is that loan payments will be the same each month. The thing that makes a mortgage loan special though is that it is self-amortizing.
This means that although you keep paying the same amount every month, over time more of that payment will be going toward the principle rather than the interest. The lower the amount of money you have left to pay, the less interest that can be charged to you.
How Mortgage Amortization Works
In order to get a fuller understanding of how amortization works, you should have a look at an amortization table. You could use a mortgage calculator with a full amortization table to see how both the interest and principal amount of the loan are affected over time.
To get a brief crash course on how an amortized mortgage works though, let’s look at an example.
Let’s say that you have taken out a mortgage for $150,000 with a fixed rate of 5% over a term of 30 years. The fixed monthly payment that you would be making on such a loan would be $805.23 for 360 months.
At first, your payments will go toward the interest. On your first mortgage loan payment, $625 in interest and $180.23 will go toward the principle of the loan. That being said, as you repay your mortgage, that ratio will shift toward you paying more on your principle instead of the interest that comes with it.
Other Kinds of Amortized Loans
In addition to mortgage loans being amortized, there are several other kinds of loans that are amortized as well. Other examples of amortized loans can include (but are not limited to):
- Auto loans
- Title loans
- Various forms of personal loans
Loans That Are Not Amortized
That being said, although there are many kinds of loans that are amortized, there are quite a few that are not. Some of these unamortized loans include:
- Interest only loans
- Credit cards
- Balloon loans
Find Your Best Mortgage Loan Deal with the Help of MaxCash!
If you have decided that a mortgage sounds like the thing for you, then look no further than the good folks at MaxCash to help you secure the best deal possible!
We help people across the nation every day get the mortgage loan they need to proudly call themselves homeowners. We work closely with only the best lenders out there in order to help individuals acquire a square deal.
To get a hold of us, there are a variety of ways to do so. Take a look:
- Calling us on our toll-free number at (833) 207-9052
- Emailing us at firstname.lastname@example.org
- Coming down to our physical office at 1270 E. Broadway Rd., Suite 208, Tempe, AZ 85282