Mortgage Loans: What Does "Amortizing" Mean?

If you are new to the world of mortgage loans, the jargon probably has you perplexed. One particularly bewildering piece of jargon is "non amortizing" versus "amortizing" loans. The meaning of "amortizing" is simple: To amortize is to pay off a loan with regular payments that cover both the interest and the principal, and which completely pay off the loan by the end of the agreed term. But what does that mean when it is applied to mortgages?
Amortizing Mortgage Loans
* The monthly payments cover all of the interest accrued during the billing period, plus part of the principal.
* Payments are designed to pay off the entire mortgage loan gradually over the term of the loan.
* For fixed rate loans, the interest rate and the size of the monthly payments stay the same throughout the term of the loan. For adjustable rate loans, the interest rate fluctuates, and the size of the monthly payments fluctuates proportionately.
* Amortizing loans often have higher interest rates than non amortizing loans when the amortizing loans standard interest rate is compared to the non amortizing loans interest rate during the grace period.
* Best for property owners who intend to own their house for several years or more.
Non Amortizing Mortgage Loans
* Monthly payments cover only the accrued interest, or may cover even less than the total accrued interest and allow interest to compound.
* Payments are not designed to pay off the entire mortgage loan gradually over the term of the loan. After a grace period, the balance of the loan may be due on a much faster schedule than a comparable amortizing loan, or the entirely of the remaining balance may be due in a single payment.
* May be either fixed rate or adjustable rate. Just as with an amortizing loan, the size of the monthly payments either varies or stays the same. However, the effect of the grace period should be taken into account.
* Interest rates are often considerably lower than interest rates for comparable amortizing mortgage loans during the grace period. After the grace period, interest rates may be considerably higher than for comparable amortizing loans.
* Intended for borrowers who plan to refinance during the grace period. Non amortizing loans are frequently the mortgage type of choice for people who "flip," or renovate and resell, houses, and are a temporary solution for people who are having financial problems and need lower mortgage payments for a few years. Sites Consulted Home equity loan ... Equity loans ... Mortgage calculator ...

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