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Updated over 5 years ago,
Term vs Amortization
I need help understanding the difference between term and amortization.
The way I understand it after doing research is that the “term” is the period of time where you are committed to the terms and conditions (including interest rate) of your original lender.
The amortization is the period of time where you are actually paying off the loan, where your initial payments are interest heavy and your final few payments are principal heavy.
So if you have a 30 year fixed rate mortgage, then both your term and amortization period are 30 years, right?
My confusion comes from my research, where many people are saying that it is most common to have a 5 year term and 25 year amortization period. Are these people referencing ARMs?
Thanks for the help!