Loan amortization; it sounds like a big phrase legal types like to use to scare the little guy but it is really quite simple. Amortization is simply the act of paying off a debt, a loan for example, by making payments applied to interest and the actual amount of the debt, or principle. The payments are usually once a month, but there are also other options available. The benefit of paying towards interest and principle is that the overall amount of the loan will go down over time; meaning the loan is paid off. This is because the interest amount is directly related to the principle; when the principle goes down so does the amount of interest. If you pay the same amount every month, over time more of your payment will go towards paying the principle and therefore paying off the debt quicker.
There are also non-amortizing loans. These loans generally have payments of interest only and overtime actually increase the about of principle, or debt. Meaning instead of having paid off the loan in 15 years or so you actually owe more.
Amortization is generally beneficial to most people looking for a loan. When loan or mortgage shopping few people are shown any loans that are not amortizing because loan originators and loan officers are required by law to help find a loan program that fits the customer best. That is a large reason amortization is unknown to many people; they already have loan amortizations but don’t know it because it is so common. Everyone looking for a loan or mortgage should want an amortizing loan. In any case where one would not be beneficial, the loan originator or loan officer will explain other options that apply`.
The average home mortgage payments can be called home loan amortizations. Exactly in the same way that car payments are car loan amortizations and commercial loan payments are commercial loan amortizations. The principle starts off at a certain amount, plus an amount of interest related to the principle, over a set period of years. Sometimes a chart can help visualize how amortization works. On the internet there are many loan payment calculators. One such calculator is located at http://www.bankrate.com/brm/popcalc2.asp . When you enter in the principle, interest, and length of the loan, an amortization table is generated. By studying the table it is shown that over time interest amount falls while the amount applied towards principle rises.
Now that the basics of amortization are known you know what to look for when shopping for a loan or mortgage. Just keep in mind that steady payments that you can financially handle along with a set date the debt will be paid off are generally what you want.