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Amortization
The process of paying off a loan through scheduled payments that cover both principal and interest over time.
Definition
Amortization is the gradual repayment of a loan through regular installments that include both principal and interest. In the early years of a standard 30-year amortizing loan, most of each payment goes toward interest, with the principal portion increasing over time. An amortization schedule shows exactly how much of each payment applies to principal versus interest. Some loans feature a 40-year amortization, which lowers the monthly payment but increases total interest paid. Understanding amortization helps investors accurately forecast cash flow and equity build-up over their hold period.
How This Relates to DSCR Loans
DSCR loans commonly offer 30-year or 40-year amortization schedules. A 40-year amortization lowers your payment, which improves your DSCR and can help you qualify.
Related Terms
Interest-Only
A loan payment structure where you pay only interest for an initial period, with no principal reduction.
Fixed Rate Mortgage
A mortgage where the interest rate remains the same for the entire loan term.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
PITIA
The total monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues.
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