Understand the rule of amortisation

Property ObserverDecember 7, 2020

Amortisation refers to the process of paying off your loan (the principal amount) once the interest component has been paid.

In the first few years of a new loan, most of your monthly repayment will go to paying off interest and only a small portion will go towards paying off the principal loan itself.

The longer you stay in the same loan, the more of the principal you pay off and more equity you build up in the property (provided your home does not depreciate in value).

Ahead of considering different refinancing options you should plug some scenarios (loan amount, rate, length of loan) into a mortgage amortisation calculator.

This will show you how much of your monthly repayments will go towards interest and how much will go towards reducing the principal loan amount and your total interest bill over the life of the loan.

Use this calculator to test out various amortisation scenarios and find the one that best suits you.

 


This article was taken from Property Observer's free eBook: 12 tips for refinancing your mortgage.

 

Editor's Picks