The Motley Fool Discussion Boards

Previous Page

Personal Finances / Buying or Selling a Home


Subject:  Amortization: 30YR vs ARM Date:  2/6/2014  1:02 PM
Author:  crackdclaw Number:  126792 of 128866

I guess I could Google this and dig deeper into the numbers, but perhaps someone on the boards will chime in with an answer in plain english. I did ask 3 or 4 work colleagues, and no one had even given this any thought.

Why does an ARM loan product initially amortize quicker than a 30YR fixed? Both loan products have a term of 30YRs and the amortization schedule will allow both loans to be paid to $0 after 30YRs. Yet the ARM loan will have it's balance reduce quicker than a 30YR fixed.

In month one, more money goes toward principal vs interest with an ARM vs a Fixed rate, when both have 30 year terms. This continues in the early years of the mortgage. If you were to compare a 7YR ARM vs. a 30YR fixed, at the end of the ARM's fixed rate, (7 years or 84 months) the loan balance on the ARM is significanlty lower than the loan balance on a 30YR Fixed. Yet both loan products have 30YR amortization schedules?
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us