The mortgage loan is subject to amortization like all other forms of credit. The bank generally leaves it to the borrower to choose the repayment formula best suited to their situation.The question of which type of amortization to adopt depends on a good understanding of what is meant by amortization and what it entails.
When concluding a real estate credit contract, such as real estate solutions, the financial institution and the borrower agree on a repayment plan where elements such as monthly payments and the repayment period are mentioned. A repayment schedule is then drawn up together.
This is an amortization plan whose objective is to precisely indicate how the credit will be repaid and the amount of each monthly payment.
Definition
The amortization of a mortgage loan corresponds to the repayment of the borrowed capital. To avoid any confusion, it should be clarified that a credit consists of two different realities. On one side, there is the amount requested by the borrower, which is the subject of the loan, i.e., the capital, and on the other, the interest received by the bank in return for its services. There are situations where the amortization of the mortgage credit allows for a tax deduction. It is advisable to inquire about the required conditions.What is an amortization plan?
When concluding a real estate credit contract, such as real estate solutions, the financial institution and the borrower agree on a repayment plan where elements such as monthly payments and the repayment period are mentioned. A repayment schedule is then drawn up together.
This is an amortization plan whose objective is to precisely indicate how the credit will be repaid and the amount of each monthly payment.
What are the different types?
There are 3 possible types of amortization for the mortgage loan:- The first consists of proceeding with a regular repayment of constant monthly payments. During the initial period, the interest portion of this amount will be more substantial compared to that of the capital. At the end of the contract, the opposite will be true, with more capital than interest in each payment.
- The real estate credit can also be amortized in such a way as to repay all the interest throughout the term. It will only be at the end of the loan that the borrower will repay in full the capital as well as the interest corresponding to the last monthly payment.
- Another alternative consists of repaying a fixed amount in capital in each monthly payment. The capital portion to be included in the payment will be calculated by simply dividing the capital by the number of months related to the amortization. As for the interest, they will be repaid on a declining basis as the contract progresses towards its term.