Fully Amortized Note
A fully amortized note is the most common type of loan with institutional lenders. Interest is charged on the outstanding principal balance (original loan amount plus any loan costs that the borrower wants to add instead of paying them at the time of funding the loan) at the rate and term agreed upon by the lender and borrower. After the interest is calculated for the term of the loan and added to the principal to obtain the amount to be amortized, payments are determined by dividing that amount (principal plus interest) by the number of payments in the term o f the loan. Regular periodic payments of both interest and principal are made, which pay of debt completely by the end of the term.
A common type of fully amortized note is a fixed loan. These types of loans are available for 30 years, 20 years 15 years and even 10 years. There are also bi-weekly mortgages, which shorten the loan by alloying for half the monthly payments every two weeks.
Fixed rate, fully amortizing home loans have two distinct features. First, the interest rate remains fixed for the life of the loan. Secondly, the payments remain level for the life of the home loan and are structured to repay the loan by the end of the loan term. The most common fixed rate loans are 15 year and 30 year loans.
During the early amortization period, a large percentage of the monthly payment is used for paying the interest. As the loan is paid down, more of the monthly payment is applied to principal. A typical 30-year, fixed rate mortgage takes 22.5 years of level payments to pay half the original loan amount.
Kevin O’Connor
Mortgage Consultant
www.koloans.com
800.550.5538
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