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?
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