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07 March 2011

Meaning of Amortization of Loan

The meaning of amortization is a gradual loan amount reduction after repaying or debt reduction. This takes place over the tenure of loan repayment.
It is important to understand that home loan taken byt he borrower is for a certain period of time. The lending institution be it private banks or lenders or nationalised banks and other loan lending institutions have certain rules and format for each type of loan. There is a set period of tenure and the packages for loan repayment are adjusted accordingly. After the procedures for applying for a loan and loan approval the EMI are adjusted according to  financial capacity of the individual and their repaying position.
As the monthly installments begin after the down payment and the borrower starts paying monthly EMIs regularly it is observed that loan repayment starts. One can notice the reduction in the debt gradually over the months and the final loan amount is reduced after every installment.

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