{"id":434,"date":"2017-04-06T15:39:25","date_gmt":"2017-04-06T22:39:25","guid":{"rendered":"https:\/\/financer.com\/?page_id=434"},"modified":"2024-06-05T10:18:50","modified_gmt":"2024-06-05T17:18:50","slug":"mortgage-amortization","status":"publish","type":"wiki","link":"https:\/\/financer.com\/loans\/articles\/mortgage-amortization\/","title":{"rendered":"Mortgage Amortization: Straight-Line vs. Mortgage-Style"},"content":{"rendered":"\n

Loan amortization is when you pay off a debt in equal installments<\/strong>. Part of the payment is applied to the principal<\/strong>, and part to the interest<\/strong>.<\/p>\n\n\n\n

However, with mortgage loan amortization<\/strong>, the amount applied to the principal starts out smaller and gradually increases with every installment.<\/p>\n\n\n\n

Your amortization schedule shows how much of your installment goes to the principal and the interest of the loan.<\/p>\n\n\n\n

When shopping for a mortgage, there are typically two different ways a loan\u00a0can be calculated: Straight-line amortization<\/strong> and mortgage-style amortization<\/strong>.<\/p>\n\n\n\n

Which is right for you? Let\u2019s take a look at the differences.<\/p>\n\n\n

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Tip<\/strong>: Use a mortgage amortization calculator<\/a> to determine your repayments and interest.<\/p><\/div>\n\n\n

Straight-Line Amortization<\/h2>\n\n\n\n

The straight-line amortization calculation is the simplest way to repay a mortgage loan<\/a>. Also referred to as a constant amortization, the amount applied to the principal of the loan remains constant with every payment<\/strong>.<\/p>\n\n\n\n

Although the amount applied to the loan principal remains the same, the amount applied to interest varies based on the outstanding loan balance. <\/p>\n\n\n\n

Consequently, your installment payments will also vary<\/strong>.<\/p>\n\n\n\n

At the beginning of the loan, installment payments will usually be higher<\/strong>. Over time, the amount of each payment becomes lower as the outstanding balance decreases.<\/p>\n\n\n\n

You can calculate your payments with a straight-line amortization calculator.<\/p>\n\n\n\n

Mortgage-Style Amortization<\/h2>\n\n\n\n

Mortgage-style amortization is the most traditional way of repaying a mortgage. The method is sometimes referred to as the constant payment method<\/strong> because every installment payment is the same<\/strong> throughout the duration of the loan.<\/p>\n\n\n\n

With mortgage-style amortization, the amount applied to the principal and the amount applied to interest change. At the beginning of the loan, a higher proportion of the payment will be applied toward interest<\/strong>.<\/p>\n\n\n\n

A\u00a0similarity between the straight-line and the mortgage-style amortization is that interest payments <\/a>are based on the outstanding loan balance in both methods of calculation.<\/p>\n\n\n\n\t\t

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Advantages and Disadvantages of Straight-Line and Mortgage-Style Amortization<\/h2>\n\n\n\n

If you\u2019re looking for the fastest method to reduce your outstanding loan balance, the straight-line amortization method is the best option. <\/p>\n\n\n\n

The mortgage-style amortization method offers the benefit of flat installment payments that do not change. This typically makes budgeting easier.<\/p>\n\n\n\n

With the straight-line method, some borrowers might find it difficult to manage the larger initial payments. These higher early payments can affect your budget<\/strong><\/a> and make it more challenging.<\/p>\n\n\n\n

Most of the interest is paid at the beginning of the loan with a mortgage-style amortization, so it can take longer to reduce the principal of the loan. <\/p>\n\n\n\n

Each option brings advantages and disadvantages. It is important to research the options and to choose the one that is best for your financial situation.<\/p>\n\n\n

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Mortgage Amortization Quiz<\/h3>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t\t

Test your knowledge<\/p><\/div>\n\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t\t

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