What is an amortized loan?

AMORTIZED LOAN IS A LOAN where payments are the same amount every month. Each payment pays part of the loan and part of the principal or borrowed amount. The amortized loan can be overall, which means that payments will remain the same until the specified period when the loan is repaid. Alternatively partially amortized loans mean that at the end of the specified payment period there is a large additional payment, called a balloon payment. Especially in the first months of loans, most of the payment is likely to get interest. Very few of the first payments are actually worthwhile, because the amortized loan charges all interest in advance. So with any amortized loan, gradually payment to increase principal and decrease in interest payments, although the amount of payment is the same.Y, which really owns, can be very small. In the amortized vehicle loan is usually a point where the value of the next car sales is much lower than the actual amount it would owe for the car if immediately pay offIl.

This effect happens upside down because one has spent so little on the actual amounts and so much interest. Usually there is a paycheck that is lower than the total amount due from the loan. This may not correspond to the actual value of the car.

If a person looks at a domestic amortized loan, he would see the same effect if the values ​​of the house drop. For example, in a 15 -year amortized USD loan (USD), 7% interest is almost $ 900 per month. The main amount paid during the first year ranges from about $ 300-400, for a monthly payment. The larger amount of payment, about $ 500–600, pays interest on the amortized loan.

The first year of this amortized loan can be paid $ 3600-4200. If the values ​​of the house decrease by $ 10,000 this year and one has to sell the house, one would do so with a loss, which would affect the amount of any backup it could get back. CompleteE and two or three years for payments, a reduction in real estate values ​​could mean that the sale of the house could lead to a total loss of the initial backup.

One can generally acquire more ownership of real estate by paying additional amounts to the director of the amortized loan. Usually, it is usually necessary to find out whether the credit agency will allow further principal payments. Furthermore, it should be assured that the principal payments are clearly marked and as such are credited by a banking or rental company. Sometimes another payment is made as an amortized loan is considered to be prematurely launching another planned payment. Make sure to check that the bank actually attributed these payments "The Principal."