What Is Mortgage Amortization- by toriola1

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What Is Mortgage Amortization? By Bradley Thornton

Mortgage amortization is the act of repaying a loan that has been granted for the express purpose of purchasing a property. Actual amortization occurs through regular payments made over time. How Does Mortgage Amortization Work? The accounting period for mortgage amortization considers that there are 12 payment days in each calendar year. These days fall on the 1st of each month. The actual mortgage account commences on the 1st day of the month that follows the day your mortgage loan becomes active. The first payment you make is known as "interim interest" and occurs between the period of the day your mortgage becomes active and the day your account begins. Subsequent repayments for your mortgage loan begin on the 1st day of the month that follows. So, if we consider as an example that a 30 year mortgage of $200,000 at a 6% interest rate becomes active on 15th January, you will pay interim interest of $1199.12 for the period when your mortgage loan becomes active (15th January - 1st February) with your first actual payment due on 1st March. Mortgage loan payments are split: part of your payment goes towards interest on the mortgage loan and part goes towards reducing the balance of the loan itself. Interest payments are calculated through multiplying 1/12 of the rate of interest by the mortgage balance of the previous accounting period. So in our example, 1/12 of 6% is 0.005. Consequently, the interest you would pay on March 1st would be: 0.005 x $200,000 = $1,000 The remainder of the $1,199.12 ($199.12) goes towards the principal balance, reducing it to $199,800.88. Principal payments are a residual: i.e. the difference between the total payment amount and the interest owing. The mortgage payment process continues for each monthly accounting period throughout the term of the mortgage, with the interest payment slowly decreasing as the principal payment increases. So on the 1st March the interest calculation would be: 0.005 x $199,800.88 = $999.01 The principal would be reduced by $200.09 (the remainder of the $1,199.12 payment after interest), leaving the principal at $199,600.79.
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Penalties for Late Payments Although most lenders will offer a "grace period" to borrowers, whereby payments can be deferred from the 1st of the month up to around the 15th, mortgage amortization payments that arrive after the 15th would normally be subject to a late payment charge of up to 5% of the normal monthly payment amount. Amortization and Overpayment If you decide to overpay your agreed minimum amortization payment, you can effectively reduce the mortgage principal by the amount of the overpayment. Using the above scenario as an example, if you were to pay $2,199.12 on the 1st March you would reduce the principal to $198,600.79. This enables more of the principal to be reduced in subsequent payments as the ratio of interest payment to principal payment has been dramatically changed. Tools to Help You Amortize Your Mortgage Loan One of the best tools to use are mortgage amortization schedules, which help you to see how the ratio of interest to principal payments change over time. An amortization schedule can be quite nicely displayed through the use of spreadsheet templates that hold all the amortization formulas you need enabling you to make "what if" scenarios on the fly to see how that changes the picture of your mortgage over time. Many websites offer free amortization spreadsheets with no strings attached. Bradley Thornton writes articles for finance publications. His latest on-line work can be found at http://www.mortgageamortizationusa.com/.

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The Excitement Of Mortgage Freedom By Kate Ford

What if mortgage freedom was within your grasp? But let's face it. You've just spent a lot of years getting no where on your mortgage. Isn't it time to get in control of your financial destiny? In fact, what if you started today on a plan to be mortgage free and save money at the same time? But in order to reach mortgage freedom, you need an easy method for tracking your home loan balance. And that's why an amortization schedule is the focus of this article. Mortgage amortization schedules allow homeowners to keep in touch with loan activity. These schedules are the key to mortgage freedom. By the time you are done reading this article, you will have the opportunity to print your mortgage amortization schedule. As you review it, ask yourself these three questions. 1- Is my monthly payment decreasing my mortgage fast enough? 2- How much of my payment goes toward interest each month? 3- How much do I still owe on my mortgage? As you discover the answers, it may make you feel uncomfortable. But be aware you are unlocking the door to mortgage freedom. Here is how mortgage amortization works. If you are like the majority of borrowers, your home mortgage is spread out over 30 year. During the earliest years of your loan, the greatest portion of the house payment only goes toward interest. In spite of faithfully paying the bank each month, after several years your mortgage balance has decreased very little. This contributes to the common feeling of being enslaved by a mortgage. But there is no need to settle for this. In fact, I am going to show you how to pay off your house and save money too. Keep in mind by increasing the amount you pay monthly toward principal, you can pay off your mortgage faster. And because you are learning the rudimentary basics of amortization schedules, you will be set for taking charge of your mortgage destiny. Now here are some exciting facts for you. If you finance $200,000 for 30 years at 6%, by applying just $100 more a month to your payment, you knock almost five and a half years off your loan. That's not all. You also save about $49,000 in interest payments. Let's take it a step further. By increasing the payment with an additional $100 monthly, freedom from a mortgage comes nine years earlier. And you eliminated a total of $79,800 in interest payments.

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Think about that figure. $79,800. Now I can't speak for you, but most everyone who talks with me about paying off their house early has a use for $79,800. In fact, each of us probably could say what is on the top of our list very easily. So it is time to begin dreaming about mortgage amortization because after all, the promise of mortgage freedom feels pretty great. This information available as a self-help tool is not intended as investment advice. All numbers being estimates are for illustrative purposes. You are encouraged to seek personalized advice from qualified professionals regarding issues of a financial nature.

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