Confused about difference between loan term and amortization?
I don’t understand how you can have a loan term and amortization schedule? If the loan term is used to pay off the balance, then what’s the point of amortization schedule?
[{"id": "i4kwc0x", "text": "If you have a 10 year loan with a 25 year amortization you would pay 10 years worth of loan payments as though you had a 25 year loan but at the end of 10 years you have a balloon payment due for the balance of the principal.", "replies": [], "depth": 1}, {"id": "i4l2vj5", "text": "I have financed CRE loans for over 20 years, literally every type of CRE you can imagine. With that said, I\u2019ve never seen an amortization schedule match the term length for a CRE loan, ever, and I have created some extremely charming loan metrics over the course of my lengthy career.", "replies": [{"id": "i4la1pv", "text": "This depends on the bank. I currently work in the NY metro area, most of the terms always have a balloon around 10 years.\n\nPreviously I worked in MT and unless there was some reason to balloon the payment the loan would fully amortize over 20-25 years. This was standard across the state.\n\nIMO it's more to do with competition. There are far fewer banks competing in MT and they are able to get very generous spreads and aggressive amortization schedules. The bank is more than happy to lock in a 5 year CMT + 4% (current rate is high 6s) for 20 years.", "replies": [], "depth": 2}, {"id": "i4lcjn7", "text": "You must not have handled 221D4 loans", "replies": [{"id": "i4njir0", "text": "HUD 221d4 loans are a very specific loan type that enjoys the benefits of being govt insured. I never said it was impossible for a CRE loan to fully amortize. My point was that it\u2019s super rare, and to pivot on my other comments below, when it does occur, it\u2019s highly likely to be multifamily or have some sort of govt supported loan structure.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4li8l1", "text": "\ud83c\udf88", "replies": [], "depth": 1}, {"id": "i4oa0qf", "text": "The loan term specifies the time they want their money back.\n\nThe amortization schedule specifies what that amount will be if all payments were made timely.", "replies": [], "depth": 1}]