Amortized Loans with Regard to Home Loans
What is an amortized loan?
An amortized loan is a debt that’s paid off over time in equal installments. Each payment pays off the interest and the principal.
In the beginning, the installments prioritize paying off the interest and a portion of the principal. Over time, the interest will become a small part of the installment, as the principal will have become a larger component.
For example, A loan of $275,000, with a fixed interest rate of 3.65% fully amortized over a 30-year term would have the payments broken down like this:
As you can see in the table, the “Payment” is fixed throughout the lifespan of the loan. The “Payment” represents a total of the “Principal” and “Interest.” Note: with each “Payment,” the “Interest” becomes a smaller and smaller component.