Amortization Period
Definition:
The amortization period is the length of time it takes to repay the principal balance of a loan. It is typically expressed in months, and it can vary depending on the type of loan and the lender.
Example:
There are two main types of amortization periods: fixed-term and balloon payment.
Fixed-term amortization: With a fixed-term amortization, you will make equal monthly payments over the life of the loan. This means that your monthly payments will be higher at the beginning of the loan, when the principal balance is high, and they will gradually decrease as the principal balance is paid down.
Balloon payment amortization: With a balloon payment amortization, you will make regular monthly payments for a period of time, and then you will make a large balloon payment at the end of the term. This type of amortization is often used for mortgages, as it allows borrowers to make lower monthly payments in the early years of the loan.