Accelerated Amortization

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DEFINITION of 'Accelerated Amortization'

Extra payments made towards paying down a mortgage principal. With accelerated amortization, the loan borrower is allowed to add additional payments to their mortgage bill in order to pay off a mortgage before the loan settlement date. The benefit of doing so is reduced overall interest payments.

BREAKING DOWN 'Accelerated Amortization'

For example, take a mortgage originated for $200,000 at 7% interest for 30 years. The monthly principal and interest payment is $1330.60. Increasing the payment by $100 per month will result in a loan payoff period of 24 years instead of the original 30 years, saving the borrower six years of interest. Paying a mortgage in an accelerated manner decreases the loan premium faster and diminishes the amount of additional interest the borrower is required to pay on the loan.

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