Definition:
An installment is a fixed payment made regularly—usually monthly—toward repaying a loan, including mortgages. Each installment typically covers both the principal (loan amount) and interest.
Example:
Alicia buys a home with a 30-year mortgage. Every month, she pays $1,500 as an installment. Part of that goes toward reducing her loan balance, and the rest covers interest charged by the lender.
Explanation:
In real estate, buying a home usually involves taking out a mortgage, which is paid back over time in installments. These payments are structured so that borrowers repay the full loan amount, with interest, over a set period—commonly 15 or 30 years.
Each monthly installment typically includes:
- Principal – the portion of the loan being paid down
- Interest – the cost of borrowing the money
- Taxes and Insurance – if escrowed, these are also collected with each payment
Over time, the portion of each installment that goes toward the principal increases, while the interest portion decreases. This process is called amortization.
Installments can also apply to other areas in a real estate transaction. For example, property taxes can be paid in installments, or a seller-financed deal may allow the buyer to make installment payments directly to the seller.
Why is Installment Important in Real Estate Transactions?
Installments are important because they shape the long-term affordability of a home. For buyers, understanding how much they’ll pay each month helps them budget wisely and determine what price range is realistic. For sellers, buyers who can manage consistent installments are more likely to be approved for financing and close the sale. Installment terms also affect the total interest paid over the life of the loan, so they play a big role in the overall cost of homeownership.