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 A mortgage is a technique that is used to create a lien on real estate by a contract. It is an instrument that the borrower called the mortgagor uses to pledge real property to the lender called the mortgagee as a security for a debt. While going through the mortgage transaction a borrower has often to make payment of interest and a portion of the outstanding principal balance during each payment cycle. This is where mortgage amortization comes in.

Mortgage Amortization is the repayment of a mortgage loan by installments with regular payments to cover the principal and interest. It is the process of reducing principal and interest in equal installment payments at specific intervals over a set term. ( )

A fully amortized loan payment is a portion of which will be applied to pay the accruing interest on the loan, with the remainder being applied to principal. Generally with each payment, you pay back part of the money originally borrowed (the principal) plus interest on the declining balance of the principal. The amount of your periodic payments depends, in part, on the principal, the interest rate and the length of time allowed for repayment. Thus in this way the loan is paid off in the specified term.

Amortization term is the amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. Amortization period is the length of time, commonly 25 years that it takes to completely pay off a mortgage through repayment of the original debt or principal and the accumulated interest. Assumption of a mortgage – the buyer of a property agrees to take over repayment of the current owner mortgage as part of an agreement to purchase the property, usually to save the current owner discharge costs or because the existing interest rate and term are attractive.

Negative Amortization is a loan in which the interest rate and payment may change independently from each other creating the potential for the principal balance of the loan to increase rather than decrease over the term of the loan. Negative amortization loans could land borrowers in trouble when interest rates rise and their monthly payments soar out of reach, the experts warn. It leaves borrowers with a higher principal and is a technical description of a financially poisonous loan.

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This Financial Services article was written by Lance Williams on 6/7/2005

Lance Wiliams is an accomplished contributing writer presently working in association with Currently he is working on
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