What is a Fully Amortizing Payment?

A Fully amortizing payment is a loan payment made periodically according to the amortization schedule, which allows both the principal and interest to be completely paid off by the borrower at the end of the loan term. In a fully amortizing payment, a loan is completely paid off at the end of the loan term. The loan principal refers to the actual amount of money a borrower takes to form a lender while the interest of the loan is the cost of borrowing the money. In a fully amortizing payment, a larger chunk of the payment made covers the principal of the loan, while the rest covers interest payment towards the end of the loans term, but the reverse is the case at the initial stage.

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How Does a Fully Amortizing Payment Work?

Amortized loans are designed to be completely paid off at the set time for the loan period. Amortized loans have an amortization schedule that allows a borrower to make periodic payments which will cover the principal and the loan interest at the end of the loan term. For instance, if a borrower takes a 10-year fixed mortgage loan, the loan principal and the interest over the 10-year period will be calculated and spread over the loan term. The borrower is expected to make payment according to the amortization schedule if the borrower does not default on paying, the loan principal and interest will be paid in its entirety by the end of the loan term.

Fully Amortizing Payments Versus Interest-Only Payments

The opposite of a fully amortized payment is an interest-only payments in which a borrower has no amortized payment schedule and is not required to pay off the loan in its entirety at the end of the loan term. In this payment schedule, a borrower can make non-fully amortizing payments at the early stage of the loan term and subsequently make fully amortizing payments, higher than the initial payments later in the loan's term.