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Discussion Groups / English Usage / January 2004Is there really such a word as "amortization"
I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml web page to look up the Swedish / Norwegian word "amortering" to English. An "amortering" is what you get from the bank when you buy a house. The bank lends you the money and you pay back interest for the rest of your life. According to the Royal Technical High-School "amortering" is defined as: "Repayment by instalments, amortization; payment, instalment". So what the heck happened to "mortgage"? Is mortgage still a valid English word? Do Americans use another word instead of mortgage? Regards H ----------------------------------------------- According to statistics, every fourth person is stupid. This means that if the 3 people closest to you are sane, then you should worry ;-) > I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml > web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 7 lines] > So what the heck happened to "mortgage"? Is mortgage still a valid English > word? Do Americans use another word instead of mortgage? "Mortgage" is still a valid and common English word. "Amortering" is not an English word. "Amortization" is, but it doesn't mean "mortgage", it's more like an accounting procedure. Merriam-Webster defines the verb as: 1 : to provide for the gradual extinguishment of (as a mortgage) usually by contribution to a sinking fund at the time of each periodic interest payment Perhaps your "amortering" is used for both concepts?  SignatureBest -- Donna Richoux >> I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml >> web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 17 lines] > >Perhaps your "amortering" is used for both concepts? Although the Voice of Authority on this one is obviously going to be Prof. Dr. Hortsense L. Spira, I'll chip in by saying that I regularly see the verb as "amortise" when it refers to a loan being paid of a return gradually being obtained on an investment, and "depreciate" when it refers to an asset losing value over time. -- Ross Howard >>>I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml >>>web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 23 lines] > return gradually being obtained on an investment, and "depreciate" > when it refers to an asset losing value over time. Thank you for that introduction, Mr Howard. I'll resist the temptation to get very technical about the accounting meaning of depreciation and its relationship to asset value and confine myself to the comment that amortisation - in accounting terms - means the same thing as depreciation (spreading the cost of an asset over the periods of time in which it is used) but is most often used with specific reference to leases. The OED definition: "The extinction of a debt, or of any pecuniary liability, especially by means of a sinking fund" may represent its general use but not its *accounting* use. Accountants are as creative with words as they are with numbers, you see. SignatureLaura (emulate St. George for email) ... >I'll resist the temptation to get very technical about the accounting >meaning of depreciation and its relationship to asset value and confine [quoted text clipped - 7 lines] >general use but not its *accounting* use. Accountants are as creative >with words as they are with numbers, you see. I think Laura knows more than she's telling us here. SignatureMike Bandy >>I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml >>web page to look up the Swedish / Norwegian word "amortering" to English. An >>"amortering" is what you get from the bank when you buy a house. The bank >>lends you the money and you pay back interest for the rest of your life. >> >>According to the Royal Technical High-School "amortering" is defined as: KTH (Royal Institute of Technology) is not a "High-School". It is a technical university. >>"Repayment by instalments, amortization; payment, instalment". >> [quoted text clipped - 10 lines] > > Perhaps your "amortering" is used for both concepts? The dictionary definition above shows that "amortering" is either a verb (basic Swedish form = amortera) or a noun. Some debt is killed by instalments. It doesn't mean mortgage. SignatureLars Enderin > > >According to the Royal Technical High-School "amortering" is defined as: > KTH (Royal Institute of Technology) is not a "High-School". It is a > technical university. Hi Lars, At long last, someone who can explain to me. I have been looking for someone like you for ages. If "Högskolan" is university, then what is "Gymnasium"? > If "Högskolan" is university, then what is "Gymnasium"? PS - I mean "gymnasium" på svenska. As an English speaker I always think of "gymnasium" as the place smelling of sweaty feet and rubber where obese secondary school British children are forced to climb ropes and and jump over wooden "horses". In our last episode, <bv3alo$lhf$1@newstree.wise.edt.ericsson.se>, the lovely and talented Harry broadcast on alt.usage.english: >> If "Högskolan" is university, then what is "Gymnasium"? > PS - I mean "gymnasium" på svenska. As an English speaker I always think of > "gymnasium" as the place smelling of sweaty feet and rubber where obese > secondary school British children are forced to climb ropes and and jump > over wooden "horses". In most of Europe "gymnasium" or its local cognate means a prep school. SignatureLars Eighner -finger for geek code- eighner@io.com http://www.io.com/~eighner/ "Classic. A book which people praise and don't read." --Mark Twain >>>>According to the Royal Technical High-School "amortering" is defined > [quoted text clipped - 7 lines] > like you for ages. > If "Högskolan" is university, then what is "Gymnasium"? Most Swedish universities are called "universitet", but "högskola" is on the same level, although more specialized (engineering, dentistry, etc). "Gymnasium" is the stage before university. SignatureLars Enderin > Most Swedish universities are called "universitet", but "högskola" is on > the same level, although more specialized (engineering, dentistry, etc). > "Gymnasium" is the stage before university. > Lars Enderin Ok, I think i understand. Not too sure it is very logical, but please forgive me one last question: What is a "college"? (The college defined in English as as a : a self-governing constituent body of a university offering living quarters and instruction but not granting degrees <Balliol and Magdalen Colleges at Oxford> b : a preparatory or high school c : an independent institution of higher learning offering a course of general studies leading to a bachelor's degree d : a part of a university offering a specialized group of courses e : an institution offering instruction usually in a professional, vocational, or technical field <business college>) Harry >>Most Swedish universities are called "universitet", but "högskola" is on >>the same level, although more specialized (engineering, dentistry, etc). [quoted text clipped - 13 lines] > instruction usually in a professional, vocational, or technical field > <business college>) "College" is not a Swedish word. I have nothing to add to the definition above. SignatureLars Enderin > >>I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml > >>web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 5 lines] > KTH (Royal Institute of Technology) is not a "High-School". It is a > technical university. "Beware of false friends." Technische Hochschule, Gymnasium, whatever. > >>"Repayment by instalments, amortization; payment, instalment". > >> [quoted text clipped - 14 lines] > (basic Swedish form = amortera) or a noun. Some debt is killed by > instalments. It doesn't mean mortgage. And in English, mortgages don't have to be paid off in instalments. (In fact, I have one of those -- interest only for 15 years and then a balloon, if I'm stupid enough to actually do it that way. [Note -- it's not stupid to do it that way *if you can afford it*. I can't.]) But they usually are, which is where amortization came from, historically. Jon Miller >> I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml >> web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 17 lines] > >Perhaps your "amortering" is used for both concepts? Amortize does have the one meaning to write off a debt over several years, but the common business usage is to write off an expenditure over a number of time periods. The expenditure is made now, but the amount of the expenditure is spread out over several times periods so the one-time expenditure does not unrealistically affect one time period. There is no debt involved in this definition. It is an entirely different concept than a mortgage. The business depreciates assets, but amortizes expenses. If a business installs an expensive new phone system, that cost may be amortized over several years so the current period doesn't look so bad. > I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml > web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 7 lines] > So what the heck happened to "mortgage"? Is mortgage still a valid English > word? Do Americans use another word instead of mortgage? In the US, "mortgage" refers specifically to a secured interest in real property. There used to be a "chattel mortgage," equivalent to the UK "hire purchase," but that has fallen into disuse with the rise of the Uniform Commercial Code (some variant of which is now the law in all 50 states -- even Louisiana -- and the District of Columbia), which uses the terms "secured transactions" and "security interest." Since any installment loan, regardless of what, if anything, secures it, can be set up to amortize over almost any period of time, "mortgage," at least as Americans use it, does not cover the full scope of what is meant. I can't answer for the UK. SignatureBob Lieblich Who at times can barely answer for himself > I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml > web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 7 lines] > So what the heck happened to "mortgage"? Is mortgage still a valid English > word? Do Americans use another word instead of mortgage? Both words are used in the US, but in slighly different senses. Without reference to a dictionary, my understanding would be that: 1) mortgage basically refers to the loan and the related legal contract by which the company lending the money keeps the title (legal ownership) to your home until it is all paid for. People whose homes are mortgaged are generally referred to as 'home owners', but strictly speaking this ought only to apply to those whose homes are 'free and clear'. Of course, when you are buying a home with a mortgage, you will own a proportion of the equity in the home that may vary from a very small to a very large percentage, depending on the amount of your downpayment and how far along you are with the amortization schedule (see next paragraph). 2) amortization refers to the particular type of repayment loan in which there is a schedule of usually equal payments arranged in such a way that in the first years of repayment a much larger part of each payment is interest, and over time as the balance reduces, the proportion of capital repayment gradually increases. The effect of 30-year amortization, then, is that for the first few years about 99% of each payment is interest and only a tiny amount goes to pay off the capital part of the loan. There are also 'balloon' mortgages in which you a)pay only interest for a number of years and then b) a lump sum of capital repayment comes due. I guess these work well if you are planning to move home before b) or planning to inherit money sometime soon. Possibly Norwegian only has one word for both of these English/American words, I don't know. I hope this helps. There are also 'balloon' mortgages in which > you a)pay only interest for a number of years and then b) a lump sum > of capital repayment comes due. I guess these work well if you are > planning to move home before b) or planning to inherit money sometime > soon. These mortgages used to be common in England. You would take out an endowment insurance policy to pay off the principal of the loan. They were advantageous at the time (we took one out in 1974) because the insurance payments attracted tax relief, as did the mortgage interest payments. I don't know the situation now. SignatureFrances Kemmish Production Manager East Coast Youth Ballet www.byramartscenter.com Frances Kemmish spake thus: > There are also 'balloon' mortgages in which > > you a)pay only interest for a number of years and then b) a lump sum [quoted text clipped - 9 lines] > > I don't know the situation now. Interest-only mortgages are common, although they have taken a hit in the past 10 years. The "with profits" endowment plans to which one contributed to build up the capital have severely under performed to the point where millions of people are finding that their policy does not return enough cash to pay off the original loan. This, after the borrowers were promised that it would not only fund the repayment but also provide them with a useful extra amount to pay for a cruise or car in their retirement. Many lenders and adviser have had to pay out millions of pounds in compensation for not explaining that the cash return was not guaranteed. The tax relief on endowment policies ceased many years ago and the tax relief on mortgage interest was whittled down to a level where it was irrelevant, before being scrapped about three years ago. For some reason I was dubious about this sort of loan (because it took away flexibility, I think) and always chose an "Interest and Capital Repayment" mortgage, which has been hugely to our benefit over the years. But it's still possible to get an interest-only loan, with the capital repayment being made from savings, pension cash lump sums, inheritance etc. The UK is now a fiercely competitive market for mortgages with many introductory and special offers designed to tempt you away from your current lender. We have been in this house for 10 years and I have moved our mortgage to different lenders three or four times to take account of special offers - these can save thousands of pounds per year in interest payments (this can be likened to the introductory offers made by credit card companies). The majority of borrowers keep their mortgage with the same lender for 25 years, paying the "Standard Variable Rate" and subsidising those like me who play the system. The government would like people to move to 10 or 20 year fixed rate mortgages, but these invariably cost more than the special offers so nobody is interested. SignatureDavid ===== "Frances Kemmish" <fkemmish@optonline.net> wrote... > There are also 'balloon' mortgages in which > > you a)pay only interest for a number of years and then b) a lump sum [quoted text clipped - 9 lines] > > I don't know the situation now. These policies have fallen out of favour in a BIG way over the last few years, primarily because those maturing now and in the foreseeable future will probably not repay the amount originally anticipated. This is because of the very poor performance of share-based funds over a relatively long period. For example, I started one in 1988 to repay a £99K interest-only mortgage in 2013, and I'm currently expecting at £25K shortfall on it. Millions of people are in this kind of situation, and it's a bit painful. The new "balancing" mortgages are excellent, I think. This is where you can offset various types of cash-based savings against loans such as mortgages; you forgo interest on the savings, but reduce the amount of the loan on which interest is payable. Because savings interest is taxed in the UK with no tax relief on mortgage interest, this is very efficient. Matti Matti Lamprhey spake thus: > The new "balancing" mortgages are excellent, I think. This is where you > can offset various types of cash-based savings against loans such as > mortgages; you forgo interest on the savings, but reduce the amount of > the loan on which interest is payable. Because savings interest is > taxed in the UK with no tax relief on mortgage interest, this is very > efficient. Especially for those of us who pay higher rate tax. I have one of these (I would call it an offset account) which covers my savings and car loan (I have more savings than the value of my car loan, so I don't actually pay any interest on the loan), but I haven't had the courage to move my mortgage; I think I'm getting a better deal with the discounts in any case as the offset accounts only work with the standard variable rate. SignatureDavid ===== > There are also 'balloon' mortgages in which >> you a)pay only interest for a number of years and then b) a lump sum [quoted text clipped - 9 lines] > >I don't know the situation now. Endowment mortgages have been bad news for ages. I have one that will not pay off, in 2008, the capital I borrowed in 1987, let alone accrue any surplus. Oh, and tax relief was terminated several years ago. Signaturewrmst rgrds Robin Bignall Quiet part of Hertfordshire England > > I decided to use the http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml > > web page to look up the Swedish / Norwegian word "amortering" to English. An [quoted text clipped - 21 lines] > amount of your downpayment and how far along you are with the > amortization schedule (see next paragraph). Although it is common, at least in the US, to say (humorously) that the bank owns the house (or that the resident and the bank own it jointly), in actuality the so-called homeowner really does have most of the incidents of ownership: the right to occupy or lease out the premises, the right to use it as security for a loan, the right to sell (paying off any secured loan in the process, to be sure), the right to declare the place one's residence. The mortgagee (bank or other lender) has primarily the right to seize and sell the property if the mortgagor (borrower) fails to make payments on the loan. > 2) amortization refers to the particular type of repayment loan in > which there is a schedule of usually equal payments arranged in such a [quoted text clipped - 4 lines] > of each payment is interest and only a tiny amount goes to pay off the > capital part of the loan. I think the percentage is a bit high, but otherwise I have no disagreement with this. > There are also 'balloon' mortgages in which > you a)pay only interest for a number of years and then b) a lump sum > of capital repayment comes due. I guess these work well if you are > planning to move home before b) or planning to inherit money sometime > soon. Financial institutions have become more flexible over time. Many loans on business real estate have some element of amortization in them but still balloon after a few years. This enables the lender to review the soundness of the loan and adjust the interest rate periodically. My wife owns the building occupied by her law office, and she has had a series of three-year loans that amortize at a thirty-year rate. The payments have been almost all interest, but the actual amount has dropped with the slight reduction of principal and the general lowering of interest rates. As a practical matter, most commercial balloon mortgages are renewed each time they run out. There are also adjustable rate mortgages (known as ARMs) that provide for periodic adjustment of the interest rate, usually as measured by some objective rate such as prime, but don't balloon. These are particularly good for "starter homes" that the buyers don't expect to keep for more than a few years. > Possibly Norwegian only has one word for both of these > English/American words, I don't know. Nor I. SignatureBob Lieblich Veteran of the mortgage wars Robert Lieblich spake thus: > There are also adjustable rate mortgages (known as ARMs) that > provide for periodic adjustment of the interest rate, usually as > measured by some objective rate such as prime, but don't balloon. > These are particularly good for "starter homes" that the buyers > don't expect to keep for more than a few years. I should have included in my other essay that fixed rate mortgages are in the minority in the UK - most people are on variable rates of one sort or another. I am on the fixed variable rate less 2%, or some such discount (I'd have to look it up). SignatureDavid ===== > I should have included in my other essay that fixed rate mortgages > are in the minority in the UK - most people are on variable rates of > one sort or another. I am on the fixed variable rate less 2%, I don't understand this. Fixed variable? Is that irony? > or some such discount (I'd have to look it up). Jon Miller Jonathan Miller spake thus: > > I should have included in my other essay that fixed rate mortgages > > are in the minority in the UK - most people are on variable rates of > > one sort or another. I am on the fixed variable rate less 2%, > > I don't understand this. Fixed variable? Is that irony? No, it's simple stupidity. I meant "standard variable rate". > > or some such discount (I'd have to look it up). SignatureDavid ===== > Jonathan Miller spake thus: > [quoted text clipped - 5 lines] > > No, it's simple stupidity. I meant "standard variable rate". I was worried. I thought it might be a real term, meaning something like the rate is variable but the payments are fixed (so you can have negative amortization). These things really do exist in the US (I don't know if they have a name or not). Let me explain. (This means that what follows is either a) complicated or b) beyond the ability of the presenter to explain.) The typical variable rate mortgage in the US (to the extent there is such a thing) actually has the interest rate reset once a year, on the anniversary of the closing (legal term for signing the contract). The variable rate is some index rate (usually the 11th Federal Reserve Bank's cost of funds, or US T-bills as quoted in the Wall Street Journal, or LIBOR) plus a margin. Furthermore, it is common to have caps on increases (or decreases) of 2% per year and 6% over the life of the contract. However, these provisions are by no means uniform. Still, that's the "standard" variable rate mortgage in the US. Oh, yeah, on the anniversary, when the new rate goes into effect, a new amortization schedule and monthly payment are calculated. But, there are contracts that have monthly interest rate changes, but only annual payment changes. That means that, even though interest rates are changing throughout the year, payments are not; this, in turn means, that it is impossible to create a prospective amortization table, since you don't know the interest rates for future months. A retrospective table is, of course, all but trivial, since you take the previous balance, add the interest, and subtract the payment (less escrow for taxes and insurance, if they're included) to get the new balance. Anyway, I was afraid that "fixed variable" might be the actual term used (over there) for this type of contract. This type of contract was once illegal in many states (unless there were other complicating riders) because of laws that prohibit negative amortization contracts (that is, you can't owe more after a payment than you did before). Many of these laws have been repealed. (Google on "campaign finance" and "campaign contributions" to find out why democracy doesn't work in America. Or maybe I'm wrong and voters really don't care about the legal framework of mortgage contracts.) Jon Miller Jonathan Miller spake thus: > But, there are contracts that have monthly interest rate changes, but only > annual payment changes. That means that, even though interest rates are [quoted text clipped - 4 lines] > interest, and subtract the payment (less escrow for taxes and insurance, if > they're included) to get the new balance. We have those too, although I point blank refused to be treated in this way and I think they fell out of favour after a load of rate rises in 12 months which left people on this scheme seriously behind in their payments. OTOH, if my interest rate goes down, I usually leave the payment the same, to pay off some of the capital with the money I would have been spending on interest if the rate had stayed the same. SignatureDavid ===== >Robert Lieblich spake thus: > [quoted text clipped - 6 lines] >I should have included in my other essay that fixed rate mortgages >are in the minority in the UK - That probably was because of fears about the bank rate going down when it was high, leaving one paying far more than one should. But I'd have thought a fixed rate mortgage at or near today's bank rate would be a good idea for the long term, 20 or 25 years. I can't see the bank rate falling much more. I bought my house in France on a 20 year fixed rate mortgage and towards the end it seemed cheap, even on an English salary. But inflation in France has been very low. We currently have an interest-only mortgage on my house here, repayable in 2008, and Jeanne's flat is already worth more than the sum we borrowed. Signaturewrmst rgrds Robin Bignall Quiet part of Hertfordshire England Dr Robin Bignall spake thus: > >Robert Lieblich spake thus: > > [quoted text clipped - 11 lines] > a fixed rate mortgage at or near today's bank rate would be a good idea for > the long term, 20 or 25 years. I can't see the bank rate falling much more. A 20 year fixed rate taken out today would not be at today's rate, it would be at a rate estimated by actuaries to be average for the coming 20 years. This means they are nearly always more expensive than the fantastic deals which seem to always be available. > I bought my house in France on a 20 year fixed rate mortgage and towards > the end it seemed cheap, even on an English salary. But inflation in France > has been very low. We currently have an interest-only mortgage on my house > here, repayable in 2008, and Jeanne's flat is already worth more than the > sum we borrowed. I bought my French villa on a 15 year fixed rate of 4.9%, which is much higher than the offers available in the UK. SignatureDavid ===== >Dr Robin Bignall spake thus: > [quoted text clipped - 18 lines] >coming 20 years. This means they are nearly always more expensive >than the fantastic deals which seem to always be available. Good point. >> I bought my house in France on a 20 year fixed rate mortgage and towards >> the end it seemed cheap, even on an English salary. But inflation in France [quoted text clipped - 4 lines] >I bought my French villa on a 15 year fixed rate of 4.9%, which is >much higher than the offers available in the UK. I took out my mortgage in 1977, at a rate (can't remember what, and the papers are in France) much lower than those I was used to in England. The monthly payments were literally like pin money after 5 years or so. Paid it off entirely in 1993. Signaturewrmst rgrds Robin Bignall Quiet part of Hertfordshire England Dr Robin Bignall spake thus: > I took out my mortgage in 1977, at a rate (can't remember what, and the > papers are in France) much lower than those I was used to in England. The > monthly payments were literally like pin money after 5 years or so. Paid it > off entirely in 1993. One of the benefits of raging inflation. SignatureDavid ===== > I decided to use the > http://www-lexikon.nada.kth.se/skolverket/sve-eng.shtml web page to [quoted text clipped - 10 lines] > So what the heck happened to "mortgage"? Is mortgage still a valid > English word? Do Americans use another word instead of mortgage? mortgage and amortization are as different as mortgage and mortmain -- John Dean Oxford > "Repayment by instalments, amortization; payment, instalment". > > So what the heck happened to "mortgage"? Is mortgage still a valid English > word? Do Americans use another word instead of mortgage? Amortization is the act of creating a mortgage. Actually, nearly any debt can be amortized, not just the sale of real estate. SignatureStefano http://www.steve-and-pattie.com/esperantujo > Amortization is the act of creating a mortgage. Actually, nearly any > debt can be amortized, not just the sale of real estate. So does this mean that the monthly payment agreement on the home stereo system I bought from Curry's is in fact an Amortization? >> Amortization is the act of creating a mortgage. Actually, nearly any >> debt can be amortized, not just the sale of real estate. > >So does this mean that the monthly payment agreement on the home stereo >system I bought from Curry's is in fact an Amortization? Yes. One definition of "amortization" is "the result of amortizing". Your payment schedule was determined by amortizing the sale price plus any applicable taxes and interest over a period of time. That doesn't mean that you can go into Boom Box City and say "I'd like to pay my February amortization" and expect the clerk to understand you. >>> Amortization is the act of creating a mortgage. Actually, nearly >>> any debt can be amortized, not just the sale of real estate. [quoted text clipped - 9 lines] > to pay my February amortization" and expect the clerk to understand > you. Also note that there may be some loans on which the minimum monthly payment does not cover interest. In these cases, for a customer making only minimum payments, the loan would never "die", and thus the payment schedule is not properly called an "amortization". See "negative amortization". Also, on "revolving credit" accounts (on which you may borrow, make some payments, and borrow more), there is no firm end date. For this case, too, "amortization" is not quite right. SignatureJack Gavin Stefano wrote: > > Amortization is the act of creating a mortgage. Actually, nearly any > > debt can be amortized, not just the sale of real estate. > > So does this mean that the monthly payment agreement on the home stereo > system I bought from Curry's is in fact an Amortization? No. The agreement is just an agreement. The the monthly payments are the amortization. It's the distinction between the payments and the legal document that requires you to make the payments. That (assuming certain legal forms are complied with) is the mortgage. Amortization means both the payments and the payment schedule (which also usually includes a breakdown of each payment into principal and interest and the remaining balance owed on the loan). As mentioned elsewhere, it also means the amount charged to expenses in GAAP (Generally Accepted Accounting Principles) accounting, even though the actual money was paid in the past. I am certain that the same concept occurs in Europe, even though I don't know what you call your accounting principles. You can mortgage almost anything (if you can find a lender willing to accept your property as collateral [what they take if you don't pay]). The most common thing for individuals is their house. Businesses can mortgage just about any physical asset -- a factory, boxcars, barges (yuck! it took three years to unload those!), oil wells, pipelines. They can't mortgage their souls because they have none. The mortgage is the legal document that says if you don't pay, they can claim the property (called foreclosure). The mortgage holder (lender) has first claim on the property. Jon Miller >Stefano wrote: >> > Amortization is the act of creating a mortgage. Actually, nearly any [quoted text clipped - 5 lines] >No. The agreement is just an agreement. The the monthly payments are the >amortization. I read his statement differently. I thought he meant that the "monthly payment agreement" was the amount (the payment) he agreed to pay. You read it as the document. I think you are probably right in your reading. We ended up at the same place, though. Jonathan Miller: > No. The agreement is just an agreement. The the monthly payments are the > amortization. ... > Amortization means both the payments and the payment schedule (which also > usually includes a breakdown of each payment into principal and interest > and the remaining balance owed on the loan). In Canada it used to be common (and I think it still is, but it hasn't been relevant to me for a while) for mortgages to be offered for, say, a 2-year or 5-year term with a 25-year *amortization period*. At the end of the term where would be one of those balloon payments that have been mentioned in this thread, but not for the entire principal amount, as you had been gaining equity over the term. You would finance this payment by negotiating a new mortgage. If all conditions were unchanged, after a 5-year term your next mortgage would have a 20-year amortization period, and so on; but if your income had risen, you might opt for a shorter one, and if it had fallen, you might sell the house instead, or see if the bank would offer a longer amortization period (of course they wouldn't want it to run past the age where you'd be likely to retire). I recognize the other related senses of "amortization" that have come up in this thread, but this is where I've seen it used most often. I don't remember hearing the term "balloon payment" in a Canadian context, though. SignatureMark Brader First, the next time you buy a house, get one that msb@vex.net costs exactly $100,000. It makes the math easier. Toronto -- John Gilmer My text in this article is in the public domain. |
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