meeny's Blog

The term ‘amortization’ shares its origin with the word ‘mortgage.’ Both come from the Latin root, ‘mort’ which means to terminate or kill. It should be every person’s goal to terminate or kill the balance on his or her home loan (mortgage); in order to accomplish this, a portion of each payment must go towards paying down the principal. Because the lenders charge interest, a portion of each payment also must go to them. In this article, I hope to help you better understand loan amortization.

Basically, loan payments are calculated by dividing the principal balance by the number of payments. Interest charges must also be added in to each payment, and therefore only a portion of each payment will apply to the principal. Each month the balance on the loan will decrease slightly. Because interest charges are a percentage of the balance, they also decrease each month. The payment amount remains constant, so it only makes sense that as more payments are made, a larger portion of each payment will apply to the principal. Amortization is this process of determining the payment so that a portion of each payment applies to the principal and a portion to interest charges.

There are a few types of loan programs that each amortizes a bit differently. There are adjustable rate mortgages (ARMs), fixed rate mortgages (FRMs), interest only loans (IO), and negatively amortizing loans to name a few.

An ARM is a loan with an interest rate that is fixed for a certain period of time, after which it becomes adjustable. Commonly, ARMs will have a period of 2, 3, 5, 7, or 10 years for which the interest rate and payment are fixed. When the “fixed period” is over, the interest rate may adjust up or down; consequently the loan will re-amortize causing the payment to also adjust up or down. For more information on ARMs, search this directory or visit the website below for my article entitled, “What’s best for me – an ARM or Fixed?”

A FRM will amortize at the beginning of the loan and remain constant throughout the life of the loan. The interest rate on a FRM never changes (hence the name), nor does the payment.

Interest only loans operate just as they sound. These payments are not technically amortized, rather 100% of all payments will apply to paying off the interest charges before any principal is paid down. IO loans can be helpful in some instances, but can be problematic in others. You should consult with an honest and ethical mortgage professional to determine if an IO loan is right for you.

Negatively amortizing loans (such as the MTA Option ARM) are dangerous loans that can be quite confusing to the common consumer. These loans, namely the Option ARM, typically carry payment options. One option is to pay a fully amortized amount; this means that each payment will cover a portion of the principal and the interest charges. The second payment option is an interest only option. And the third payment option is a very small amount (allowing consumers to feel as though they can afford a house that they really cannot) that does not cover all of the interest charges. The amount of interest that is not covered by this payment is simply added back onto the loan balance (negative amortization). As a borrower pays with this option, they will see themselves going backwards in their loan. For more information on the Option ARM, search this directory or visit the website below for my article entitled, “I’ve been paying on my mortgage and my balance went up!?”

Loan market is increasing with increasing cost of living. Earlier it was believed that if you own a home there are better chance for getting a loan. This is not a false statement; yes your home can get you better deals. But what about those people who are living as tenants and lacking anything to offer as collateral. Are they left out from the race of getting a loan….???. No they won’t…..with the arrival of tenant loans, popularly known as unsecured personal loans, you can apply a loan without offering anything as security.

Tenant loans are loans for you personal needs like debt consolidation, business financing, and education, health, buying property, boat, car and other such personal needs. The best thing about these loans is that you don’t have to mention the purpose of the loan to the lender. You can use the amount the way you want to use it.

Tenant loans give you the freedom from the stress and anxiety of loosing your asset as in case of secured loans. As the valuation of the collateral is not involved these loans are approved faster. Reduced and hassle free paperwork allows you to apply for these loans quite easily. Like any other unsecured loan, a tenant loan comes with a slightly higher interest rate. You can apply for a tenant loans if you are a tenant, a student or even a homeowner who don’t want to put their property at stake.

One thing which needs to be taken care of while applying for a tenant loan is your credit score. As there is no collateral, no security for the loan, only your credit score gives him some assurance that he is going to get back his money. You can obtain your credit score from credit rating agencies. They will also suggest you the ways to improve your credit score.

Normally you can apply a tenant loan for amounts ranging between ₤1000 to ₤25000. You may get higher amounts and better interest rates with little negotiations with the lender. Remember the effort is yours because the money is yours. It is highly recommended to not to apply for a loan amount which you can’t repay afterwards. Always determine your repayment ability before deciding any such loan amount.

The last but most important thing is to research properly for loan lenders. Beware of loan sharks and frauds in the loan market. Properly read terms and conditions of the loan agreement as it may contain hidden terms which can cost you later. So start searching now and get the best deals in tenant loans for your personal needs.