Partial
Amortized Mortgage Lending Practices...
Partially amortized loans
are when the
repayment schedule of a loan calls for
a series of payments
followed by a
balloon payment at
maturity.
For
example, a lender
might agree to a
30-year amortization
schedule with a
provision that at
the end of the tenth
year all the
remaining principal
be paid in a single
balloon payment. The
advantage to the
borrower is that for
10 years his monthly
payments will be
smaller than if he
completely amortized
his loan in 10
years. However, the
disadvantage is that
the balloon payment
due at the end of
the tenth year might
be his financial
downfall. Just how
large that balloon
payment will be can
be determined in
advance by using a
loan progress chart.
Presuming an
interest rate of
15½% and a 30-year
loan, at the end of
10 years the loan
progress chart,
shown below, shows that for each $1,000
originally loaned,
$964 would still be
owed. If the
original loan was
for $100,000, at the
end of 10 years 100
x $964 + $96,400
would be due as one
payment. This
qualifies it as a
balloon loan.
Loan
Progress Chart
Balance Owing On A $1,000
Amortized Loan
15½% Annual
Interest
|
Original
Life
(years)
|
|
Age
of
Loan
|
|
10
years
|
|
15
years
|
|
20
years
|
|
25
years
|
|
30
years
|
|
2
|
|
$902
|
|
$960
|
|
$983
|
|
$992
|
|
$996
|
|
4
|
|
768
|
|
906
|
|
959
|
|
981
|
|
992
|
|
6
|
|
585
|
|
833
|
|
927
|
|
967
|
|
985
|
|
8
|
|
337
|
|
732
|
|
833
|
|
947
|
|
976
|
|
10
|
|
|
|
596
|
|
823
|
|
920
|
|
964
|
|
12
|
|
|
|
411
|
|
742
|
|
884
|
|
947
|
|
14
|
|
|
|
158
|
|
632
|
|
834
|
|
924
|
|
16
|
|
|
|
|
|
482
|
|
766
|
|
893
|
|
18
|
|
|
|
|
|
278
|
|
674
|
|
850
|
|
20
|
|
|
|
|
|
|
|
549
|
|
793
|
|
22
|
|
|
|
|
|
|
|
378
|
|
715
|
|
24
|
|
|
|
|
|
|
|
146
|
|
609
|
|
26
|
|
|
|
|
|
|
|
|
|
464
|
|
28
|
|
|
|
|
|
|
|
|
|
268
|
|
30
|
|
|
|
|
|
|
|
|
|
|
A loan progress
chart is not only
useful for
determining in
advance the amount
of the final payment
in a partially
amortized loan, but
also for determining
what portion of a
fully amortized loan
remains to be paid
at any given moment
in time. For
example, a $10,000
amortized loan
originally made for
30 years at 9½%
interest is 6 years
old. How much of the
loan has been paid
off and how much
remains to be paid?
In the loan progress
chart below, enter
the column marked
"30" under
the heading
"original life
in years." Then
under "age of
loan" find the
6-year line. Where
they intersect you
will find the number
$953. This means
that for each $1,000
of original loan,
$953 remains to be
paid. For a $10,000
loan, multiply by 10
and you will find
that $9,530 remains
to be paid. As you
can see, on
amortized loans with
long maturities,
relatively little of
the debt is paid off
during the initial
years of the loan's
life. Nearly all the
early payments go
for interest, so
that little remains
for principal
reduction.
Loan
Progress Chart
Balance Owing On A
$1,000 Amortized
Loan
9½% Annual Interest
|
Original
Life
(years)
|
|
Age
of
Loan
|
|
10
years
|
|
15
years
|
|
20
years
|
|
25
years
|
|
30
years
|
|
2
|
|
$868
|
|
$934
|
|
$963
|
|
$978
|
|
$987
|
|
4
|
|
708
|
|
| |
