If you are new to the world of mortgage loans, the jargon probably has you perplexed. One of the more common and confusing sets of terms is "amortizing" loans versus "non amortizing" loans. The meaning of "amortizing" is simple: To amortize is to pay off a loan with regular payments that cover both the interest and the principal, and which completely pay off the loan by the end of the agreed term. But what does that mean when it is applied to mortgages?
Amortizing Mortgage Loans
* Monthly payments cover both the accrued interest and part of the principal.
* The payments cover the entire cost of the loan, paying off the loan gradually.
* The size of the monthly payments for fixed rate loans remains the same across the entire term of the loan because the interest rate does not change. For adjustable rate loans, the interest rate fluctuates, and the size of the monthly payments fluctuates proportionately.
* Average interest rates are often higher than the interest rate for a comparable non amortizing loan during the non amortizing loans grace period.
* Designed for homeowners who plan to own the property long term.
Non Amortizing Mortgage Loans
* Monthly payments cover only the accrued interest, or may cover even less than the total accrued interest and allow interest to compound.
* Payments do not cover the total balance of the mortgage loan, or cover the balance but do not pay off the loan gradually. After a grace period, the balance of the loan may be due on a much faster schedule than a comparable amortizing loan, or the entirely of the remaining balance may be due in a single payment.
* Available as either an adjustable rate loan or a fixed rate loan. The size of the monthly payments fluctuates or remains the same just as for an amortizing loan. However, the effect of the grace period should be taken into account.
* Interest rates are often considerably lower than interest rates for comparable amortizing mortgage loans during the grace period. After the grace period, interest rates may be considerably higher than for comparable amortizing loans.
* Intended for borrowers who plan to refinance during the grace period. Non amortizing loans are frequently the mortgage type of choice for people who "flip," or renovate and resell, houses, and are a temporary solution for people who are having financial problems and need lower mortgage payments for a few years.

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by: marciafreeman
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