What is amortization? 

If you are going to take out a home loan, you have probably come into contact with the concept of amortization. 

But what does it really mean? And what do straight amortization, annuity loans, and amortization basis mean? We sort out the concepts!

What does amortization mean?

Amortization is the amount you pay off your loan at each payment occasion. The repayment is paid together with the interest monthly or quarterly according to the repayment plan that was set up when the loan was taken out. 

How much you have to pay off on your loan, ie repay, depends on the stricter repayment requirements that exist and which came into force in March 2018. 

The repayment plan for your mortgage

For you with mortgages, there are different types of repayment plans. The most common variant is straight amortization, but there is also something called an annuity loan. 

These repayment plans tell you at what rate you should pay off your loan.

What does straight amortization mean?

The most common form of amortization is called straight amortization. Then you repay the same amount at each payment occasion during the entire term of the loan.

As you repay, your interest costs decrease, as they are based on the size of your loan.

What are annuity loans?

Annuity loans mean that you as a borrower pay a fixed monthly cost which is a lump sum of both amortization and interest. 

The amount does not change when your debt decreases as it does with straight amortization, but is the same throughout the repayment period. 

As the debt becomes smaller and the interest cost decreases, the amortization increases instead. This reduces the debt faster at the end of the repayment period. 

This type of loan is usually offered with consumer loans when you borrow directly from a store in connection with the purchase of an item.

What does an amortization-free loan mean?

In the case of an amortization-free loan, you do not pay any amortization on the loan debt, but only interest during the time that the amortization freedom is granted. 

However, there are statutory requirements for when you must repay your mortgage, so-called repayment requirements.

How does extra amortization work?

To reduce the debt on the loan more quickly, you can pay in an extra repayment. Keep in mind that you may have to pay interest difference compensation if you want to extrapolate on a loan with a fixed interest rate. 

At Konsumenternas Bank- och finansbyrå, you can count on and get an idea of ​​what the interest rate differential compensation may be.

When do you need an amortization basis?

An amortization basis is used when moving a mortgage from one bank to another. 

It is the existing bank that produces the repayment basis so that the new bank will know which repayment terms apply to the loan.