Mortgage repayment: What is it?

How mortgage repayments work and their details

Mortgage loan (mortgage) amortization is a process through which the amount that a bank loaned (capital) is returned through partial and regular payments. This is an advance mortgage repayment, which refers to the repayment of capital before the contract maturity date.

A mortgage is fully amortized when the capital borrowed is repaid in its entirety. Typically with each payment, part of the outstanding principal is repaid, as is the interest associated with the principal borrowed, which will vary based on the type of mortgage loan.

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A person may have money saved and want to allot it to pay back part of the mortgage. This can be done in two ways: by reducing the monthly payment or by reducing the term (thus settling the debt sooner, which would also reduce the total interest on the loan). When deciding, it is worth noting that repaying a mortgage early, whether in whole or in part, may involve an early repayment fee.

Mortgage repayment schedule

When the monthly payment is made, you are returning part of the principal borrowed plus the interest on that principal, which is calculated based on the amount of principal outstanding and the agreed interest rate (fixed or variable).
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A progressive or fixed-payment amortization system is typically used for mortgages, which results in equal monthly payments. It must be taken into account that this repayment, which will be constant throughout the life of the loan, already includes the interest and the repayment of the capital. The only thing that changes is how much of each of these components is paid: as the first increases, the second will decrease, so that the repayments are always the same. Since the capital that must be paid is very large during the initial years, the interest will also be greater. For this reason, we usually begin by paying a greater proportion of interest, and as time passes and the interest payments goes down, we begin to repay the capital, increasing the proportion of the capital repayments in the ratio.

However, if it is a variable-rate loan, the payments can increase or decrease depending on the adjustments made as a result of changes in the Euribor (usually every six months).

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