Are Mortgages Amortized Loans?

10 February of 2016

Mortgages are never a fun topic or a source of joy for people.  They are often associated giving away your money.  Unfortunately, not everyone can have a fairy tale ending like those YouTube clips and have our mortgages paid off on the spot.  Thankfully mortgages do not have to be paid in one lump sum payment and can be paid for overtime, with many mortgage plans being 25 to 30 years.   Another way to consider mortgages is that they are amortized loans.  This is defined as the reduction of debt through regular payments of interest and principal that will be sufficient enough to be able to pay off your loan by maturity.  Amortization according to your mortgage in simple terms is the way that your mortgage payments are distributed on a monthly basis.  It details how much interest and principal will be paid off with each payment for the duration of the loan term.

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The smaller the payments paid monthly the longer your mortgage will amortize to maturity.  At the beginning of your mortgage loans a majority of your monthly payments will be paid towards to paying down interest with very little being paid to paying down the principal.  As time goes on that will be reversed and a majority of the payments will be paid towards the principal with very little going towards interest.  If you go into a Toronto mortgage broker office you can take a look at an amortization schedule and see how the payments are laid out and what they are going towards.  This can help when deciding what the best plan is and how to save the most money in the long run.

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Amortization of your mortgage takes time and is not something that happens quickly.  However, there are ways and actions that you can take towards shortening the amortization period and saving yourself some money.   If you are to increase your monthly payments by saying a mere 50 to 75 dollars you can cut close to seven years off of your mortgage.  You will actually be decreasing the amount of interest you need to pay and can save you close to $50,000, which is nothing to blink at.  This is because you are paying more towards your interest at the beginning of your loan and thus are able to decrease the amount needed to pay quicker and can completely pay off the interest faster and without the cost still growing.  Rakhi Madan Mortgage Agent has new perspectives and can help guide you to choosing the best mortgage plan and showing you the amortization breakdown of your payments.


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