What is the opposite of a fully amortizing loan?

Answer

Any loan where the loan balance is not paid off by fixed, regular payments.

A balloon loan is a simple example. The loan comes due before the balance has been paid off. The outstanding balance is then paid in one lump sum.

Answer

A fully amortizing loan is a loan with a monthly payment of sufficient size and a term long enough that the outstanding balance of the loan will be reduced (amortized) to zero. In other words, on the maturity date of the loan (the date you can stop making payments), there is no outstanding loan balance to be paid off. The loan has been paid in full. A portion of each monthly payment was used to pay interest on the outstanding balance. The remainder of each monthly payment was applied to the loan balance as a repayment of principal.

There is no "opposite" of this. There are alternatives. A loan could be interest only -- where the entire monthly payment represents interest and there is no amount of it applied to the loan balance. As such, on the maturity date of the loan (the end of the loan term), the payoff balance due to the lender is identical to the original loan amount. There has been no amortization of the loan balance during the term of the loan.

Another alternative is a loan based on 20 year amortization but with a 5 year term. In this case, the loan payment is established by the amount that would be required to fully amortize the loan over a 20 year period (down to a balance of zero). However, at the end of 5 years, the loan matures (the end of the term) and the remaining balance must be repaid. That payoff amount will be less than the original loan amount because some amortization has occurred, but is certainly greater than zero (which would have taken another 15 years to reach).

First answer by REIBanker. Last edit by JohnCorey. Contributor trust: 40 [recommend contributor]. Question popularity: 1 [recommend question]