Check your Amortization Schedule

With all the numbers associated with different loans, determining the amount of equity you build and the length of time before you actually own your home can get confusing. For instance, a "5/1 hybrid" loan simply means the loan has a fixed rate for the first five years before the rate begins to adjust annually. The loan still might pay off in 15 or 30 years, just like most loans.

Home buyers can discover a lot about a loan by asking to see its amortization schedule. This tells you exactly how much of each mortgage payment is going toward interest and how much is going toward principal. A loan with a shorter term will have higher payments than a long-term loan, but usually more of each payment goes toward paying off the loan, enabling you to build equity faster and own the home sooner.

Understand negative amortization, too. Some home loans offer attractive monthly mortgage payments, but those low payments may not cover the interest portion of the loan. When that happens, part of the principal amount is deducted, resulting in what lenders call "negative amortization." Simply put, it means you are losing equity in your home. Some adjustable rate mortgages give buyers the option of making a minimum payment; the best lenders will inform you when such a payment will result in negative amortization and give you the opportunity to make a higher payment.

Back to Articles

Legal Disclaimer
Licensing