A fully amortizing payment refers to a type of periodic repayment on a debt. If the borrower makes payments according to the 
loan’s amortization schedule, the debt is fully paid off by the end of its set term. If the loan is a fixed-rate loan, each fully amortizing payment is an equal dollar amount. If the loan is an adjustable-rate loan, the fully amortizing payment changes as the interest rate on the loan changes.
Key Takeaways
- A fully amortizing payment is a periodic loan payment made according to a schedule that ensures it will be paid off by the end of the loan’s set term.
- Loans for which fully amortizing payments are made are known as self-amortizing loans.
- Traditional fixed-rate, long-term mortgages typically take fully amortizing payments.
- Interest-only payments, which are typical of some adjustable-rate mortgages, are the opposite of fully amortizing payments.
Understanding a Fully Amortizing Payment
Loans for which fully amortizing payments are made are known as self-amortizing loans. Mortgages are typical self-amortizing loans, and they usually carry fully amortizing payments. Homebuyers can see how much they can expect to pay in interest over the life of the loan using an amortization schedule provided by their lender.
Fully amortizing payments vs. interest-only payments
An interest-only payment is the opposite of a fully amortizing payment. If our borrower is only covering the interest on each payment, they are not on the schedule to pay the loan off by the end of its term. If a loan allows the borrower to make initial payments that are less than the fully amortizing payment, then the fully amortizing payments later in the life of the loan are significantly higher. Continuar leyendo «Pros and Cons of Fully Amortized Loans»