- 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.

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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.

Whether you’re planning to get a personal loan or a home loan amortization, you must always consider paying the loan off quickly. Doing so will help you save money as you don’t need to settle any loan interest. 

What are the types of amortization loans?

How is monthly amortization computed?

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