| According to mortgage amortization is the | | | | changes only when the rate changes. |
| reimbursement of principal from scheduled mortgage | | | | Standard Mortgage Amortization: |
| payments that exceed the interest due. The scheduled | | | | In a standard mortgage, tax and insurance payments |
| payment paid by the borrower less the interest | | | | are shown in the amortization schedules, if made by |
| equaling amortization. The loan balance declines by the | | | | the lender and the balance of the tax or insurance |
| amount of the amortization, plus the amount of any | | | | escrow account. Strict and rigid rules apply in the |
| extra payment. Negative amortization occurs when | | | | payment requirement regarding the standard |
| the scheduled payment is less than the interest due | | | | mortgage. Even if a single payment is missed the late |
| whereby the balance goes up. | | | | charges accumulate until the payment is made up. |
| The Fully Amortizing Payment on FRM and ARM: | | | | Simple Interest Mortgage Amortization: |
| The fully amortizing payment is the monthly mortgage | | | | The interest is based on the balance of the day of |
| payment that will eventually pay off the loan at term. | | | | payment on a simple interest mortgage, which is |
| On a fixed rate mortgage (FRM), the fully amortizing | | | | calculated daily. If payment were made on the first day |
| payment is calculated at the outset and remains | | | | of every month in both cases, it would come out the |
| constant over the life of the loan. On the other hand, | | | | same over the course of a year. However, if a |
| on an adjustable rate mortgage or ARM, the fully | | | | payment were late staying within the usual fifteen-day |
| amortizing payment is constant only when the interest | | | | grace period under the standard mortgage scheme, |
| rate remains constant. The fully amortizing payment | | | | one would do better with that mortgage. |