People take different types of loans for various reasons, including buying new homes, renovating homes, buying cars, or other personal needs. Regardless of the loan type, borrowers will have to pay the loan at a specified duration and interest rate. In most cases, when a borrower gets a fixed-rate loan, they’re usually provided with a debt amortization schedule that shows your monthly payments, the total interest of the entire payment period, and a breakdown of the principal balance after each payment.

What’s a debt amortization schedule?

It’s a schedule that provides information on debt and its repayment. A debt amortization schedule usually has the entire payments you’ll make over the agreed duration. Typically, every payment is broken down further to show what goes towards principal and interest payments. It also gives the total remaining balance. This helps the borrower to determine the repayment progress from time to time.

How can a debt amortization schedule help you?

A debt amortization schedule will help you in many ways. First, if you know how much interest you’ll pay for your debt, it’ll help you make advance principal payments. This will reduce the payment duration, which further reduces interest. Remember, the shorter the duration, the lesser the interest you’ll pay. Secondly, this schedule will help you determine the amount of equity in your home if you had taken a home loan. This will make it easier to refinance your home loan to get a second home or finance other home improvement projects.

Types of amortizing debts

a. Home loans

These are loans made for the purchase of properties. Home loans run for 15 to 30years and are categorized into fixed-rate and adjustable-rate mortgages. The fixed-rate mortgages don’t have any interest variations, unlike their counterparts adjustable-rate mortgages.

b. Auto loans

They’re usually short-term loans which are usually amortized. Most auto loans don’t run past 5years, although you can still get a longer duration if you’re prepared to pay for a pretty higher interest.

c. Personal loans

They’re offered by banks, online lenders and credit unions. Personal loans usually have fixed interest rates, monthly payments and payment durations.

In conclusion, these are the types of amortizing debts. The only types of debts without amortization are balloon loans, credit cards and interest-only loans.

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