Mortgage Amortization

Mortgage amortization is the systematic and continuous payment of an obligation through installments until such time as that debt has been paid off in full. The repayment plan for a fixed rate loan involves the constant payment for the life of the loan. Each payment is calculated so that all interest due to payment date is included, plus a portion of the principal which has a periodic reduction. Mortgage amortizations give assurance to home buyers that the loan payment will not increase during the life of the loan.

Another mortgage payment option in addition is the GPM or graduated payment mortgage. This payment offers differ from mortgage amortization in that the method allows home buyers to pay lower initial monthly payments in the earlier years of the loan, with payments rising in successive years to a level sufficient to receive mortgage amortizations within a 30 year loan term. With a lower monthly payment, the buyer with a lower income might qualify for a loan and be able to buy a larger house. An added requirement for GPM is to show that the home buyer will have an increase of income in the following years.

For most GPM plans, there is an accumulation of unpaid interest, called accrued interest, in the early years of the term. The borrower ends up at the end of the year with a larger balance than when the loan was originally undertaken. This is called negative mortgage amortization. Since the loan balance is increased rather than reduced, known as mortgage amortizations, prevention measures must be taken. To prevent an increase in the loan balance from exceeding the value of the property, higher down payments may be required. This is a tough decision when faced with lack of financial savings. Financial issues are important to God and He has many good tips and rules concerning how to use money. "Then said Jesus to those Jews which believed on him, If ye continue in my word, then are ye my disciples indeed; And ye shall know the truth, and the truth shall make you free." (John 8:30-31)

As long as the value of the house is not surpassed by the negative outcomes factor with a GPM plan, it is within real estate financing legal parameters. Regular mortgage amortizations decrease the principal balance at a slow and steady rate, while negative mortgage amortization increases the principal balance. If the purpose is to resell the property quickly, then the lower payment of a GPM plan may provide the savings in monthly cash flow to repair and update a home for resale. Before selecting any repayment option, it is wise to first consult with a financial counselor familiar with a borrower's history and financial goals.

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