Amortization

In depth

Amortization spreads loan repayment across a defined period, typically 15 to 30 years for real estate. Early payments are interest-heavy; later payments are principal-heavy. The amortization schedule shows each payment's split. Misconception: amortization period and loan term are not always the same; many seller-financed loans use a 30-year amortization with a 5- or 7-year balloon, meaning payments are calculated as if 30 years but the balance is due much sooner. Practically, longer amortization lowers monthly payments but increases total interest paid. In owner-finance deals, the parties often use shortened amortizations to accelerate principal reduction or pair a long amortization with a balloon to keep payments affordable while ensuring the seller receives a lump sum exit. Always provide the buyer with a written amortization table.