Mortgage Amortization: How It Works and How to Pay Off Your Loan Faster

Mortgage amortization is the process by which you reduce your debt through payments distributed over time. Understanding how it works allows you to plan better and, in some cases, pay off your loan ahead of schedule.

What Does Amortizing a Loan Mean?

Amortizing means reducing a debt through periodic payments that cover both principal and the interest generated. The system you use determines how each peso you pay is allocated.

The Three Amortization Systems

French system (most common). You pay the same monthly amount throughout the entire life of the loan. At the start, most of the payment covers interest; over time, more goes to principal. This is the system Flat.mx uses.

Graduated system. Payments start small and increase over time. Useful if you expect your income to grow.

Decreasing system. An initial larger payment is made, which progressively reduces both future interest and installments.

Is Early Amortization Worth It?

Making extra principal payments in the first years of the loan has the greatest impact: you reduce the debt when accumulated interest is highest. However, check first whether your lender charges prepayment fees.

Steps for Early Amortization

1. 1

   Contact your lender. Notify them that you want to make an early payment and ask about fees or special conditions.

2. 2

   Set the date and amount. Formalize in writing the deposit date and the amount you will apply to principal.

3. 3

   Make the deposit. Do it at least one month in advance so it is properly recorded.