ABSTRACT
This chapter describes the three types of amortizations of real estate pro forma modelling namely constant payment mortgage (CPM), interest only (IO), and custom amortization. Constant payment mortgage is the traditional loan structure utilized by most home and car loans in the United States. CPM provides level payments throughout the term of the mortgage and generally is fully amortized on most traditional schedules. Custom amortization, as the name indicates, is a customized amortization schedule. Custom amortization schedules are used for larger projects and typically have zero amortization at the beginning when cash flows for a commercial project are low or negative and ramp up quickly depending upon the schedule. An interest only (IO) loan product provides zero amortization throughout the life of the loan. It is a method to reduce monthly payments for the borrowing but does not amortize throughout the life of the mortgage.
