- Home Loan Amortization – A How-to Guide for Filipinos
In the Philippines, applying for home loans from financial institutions is one way to buy or build a home. This article will talk about how to secure that much-needed loan to finance your dream house.
Read Time: 7 minutes
Filipino families dreaming of living in their own homes can now afford one with the help of home loan amortization. An amortization offers borrowers a flexible way of paying off a loan such as a housing loan. In this simple guide, let's find out what this process is and how Filipinos can take advantage of this easy loan payment option.How Does Amortization Work?
Amortization is
about paying off a loan by breaking the loan amount into fixed payments in a
period. When a loan is amortized, a fixed fee is assigned each month for several years. The loan's principal and interest will be paid in
varying amounts, but the loan's total amount is fixed for each period.
When an amortized
payment is applied to a housing loan, the monthly payment amount or amortization schedule is fixed, but some loan components may change along the way.
A part of the
amortized payment is the cost of the interest and the cost of the loan
principal. The interest cost is what you pay the bank for the entire loan. The
amount is higher during the early periods of the loan; this is very common,
especially for large, long-term housing loans.
A large part of the
amortized monthly payment is allowed for the interest, and a small portion is
for the loan balance. It is clear that a large part of the payment goes to the principal
during the early months and years of loan
amortization, and only a small portion is for the interest.
Usually, the money
you owe the bank makes the early payments bigger compared to the amount you pay
during the subsequent months. As the compounded interest is considered in the
initial balance, you will receive higher interest than the balance of the last payment you made.
