16th August 2014
WHAT IS AMORTISATION? Understanding what amortisation is can be very important when purchasing a home. Learning about this and other features of the home loan can help you schedule your home loan payment amounts to help reduce both the length and the costs of the loan.
Yarraville
Amortisation is the factoring of a lump sum payment over time. For example, when referring to a home loan, the mortgage funds are secured by the home and you must pay them back over the course of time, as defined in the terms of the loan. The distribution of the funds into smaller, installment payments over the course of time will be itemised in the schedule that is provided with the home’s loan paperwork.
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In an amortisation style loan such as a variable or fixed-rate home loan (not applicable to an interest-only loan), the funds of the installment payments are broken into pieces that are then applied to the principle and the interest of the loan.
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In home loans, the amortisation schedule will show you how much of the loan’s monthly payment is going to the principal amount as well as how much is going to the interest that is on the loan. In home loans, this amount is broken down unevenly. In the first years of the loan, the homeowner will pay back a large amount of money each month to the interest side of the loan and a smaller to the principal. As time goes on, this will equal out and then shift to being more repayment to the principal than the interest. This is defined as to how much for each month in this schedule of payments made. In order to determine just how this will happen over the course of time, you will want to use a mortgage calculator, which can be found on most banking websites. By punching in the loan information, such as the interest rate, the terms and the principal amount borrowed, you will learn just how much interest versus principal will be on the loan. This can also be helpful in allowing you to compare interest rates, compare the amount of monthly payments as well as compare the various terms of the loans you are applying for. Amortisation is a very important factor in determining just how much you will pay for your home. By increasing the frequency of your repayments, increasing the amount you pay or making a lumpsum payment may all help decrease the interest paid and duration of the mortgage. Some lenders may charge a fee for lump sum payments over a certain amount or for paying off your loan within four years, so always seek professional advice when determining the right home loan for you. Craig J. Stephens Managing Director / Officer in Effective Control M 0418 547 938
As a service to our vendors, we will require names & phone numbers on entry of all inspections. Privacy Act 2000: We use personal information collected from you during open for inspections for security purposes. We may also use that information to contact you with respect to this property and others we believe may be of interest to you. Also, we may contact you in relation to other services provided by us or our associates such as insurance, mortgages and loans. By providing your information to us you agree to our use of it as described above unless you advise us differently. If the information is not provided we may not be able to provide an effective and comprehensive service to you. (Your personal information will be collected and held in accordance with provisions of the Information Privacy Act 2000). We have obtained all information in this document from sources we believe to be reliable, however, we cannot guarantee its accuracy. Prospective purchasers are advised to carry out their own investigations. We strongly recommend that you clearly register your interest with our representative at the open for inspection, so that in the event of a sale being imminent, your position is protected. We make every effort to contact all interested parties prior to a property being sold.
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