The word of the day is amortization, would you like to know what amortization means? I hope the answer is yes, because you’re going to find out regardless.
I hope that the answer is I already know that.
Ok, well, if not, amortization is the loan payment consisting of a portion of which is applied to the acquiring interest on the loan with the remainder being applied to the principal. Over time, the interest portion decreases as a loan balance decreases in the amount apply to the principal, increases as the loan is paid off or amortized in a specific time frame. So what that means, essentially. Well, don’t use it. It let me use it in a sentence first.
I received a 30 year fully amortized amortizing loan. Hmm. OK, so that would be the use of it in. What that would imply is that over the term of 30 years, the loan is fully repaid. Yep. So in the beginning you’re going to make a payment. The payment is going to consist of principal interest, most likely taxes and insurance as well. But we’re not talking about that.
So I’m going to segment that off and just be gone. Principal and interest, that’s what amortizing is, is going to take the amount that you pay in on a monthly basis, and it’s going to apply a portion of it to the principal in the beginning, a very small amount and interest in the beginning of time. OK, so that’s how it’s going to go that that it’s paid. And over time that balance is going to shift. And as you get deeper into your amortization schedule, then what you’ll do is you’ll start paying off more with every single payment you send in.
That would be a 30 year amortizing loan, meaning that the loan is fully paid off. If you make all the payments over a 30 year time frame with equal payments in each one of them, just kind of like ships in. There you go. Love it. That’s the word.