Question by madison134: I’m refinancing my mortgage, what exactly is amortized over 30 years?
Answer by nyboi630
Your points. Basically this means that if you get a mortgage that includes points (which are basically prepaid interest), then you CANNOT deduct it ALL in the first year, but instead have to spread out the deduction over 30 years.
(normally interest is deductible in the year you paid it, so this is the exception).
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When they say amortized over 30 years it means that it’s scheduled payments are broken down exactly for the loan to be paid in 30 years.
“Amortized” means that the payment is calculated such that if they add the interest on the loan amount and subtract the payment, 360 times, the loan amount reaches exactly zero with the last payment.
Normally, you just have the mortgage amount that’s amortized — but you have the option of including any points and/or other closing costs into the mortgage amount, too. That way, you don’t have to pay those large ticket items up front, but can spread them over the life of your loan.
It means the mortgage is set to be paid back in 360 equal amount payments over 360 months.
If you send in one extra payment per year, you will pay off the 30 year note in under 23 years. Just one extra payment per year!