Fully Amortized Loans Vs. Other Loan Types
Fully amortized loans aren’t the only type of loan product out there. Here’s a preview of the other types of home loans available.
Interest Only Mortgages
Interest-only mortgages contrast sharply with fully amortized loans. With an interest-only mortgage, you only have to make interest payments for a set period of time.
Not all interest rate mortgages work the same. Some have interest-only payments that turn into a fully amortized payment after a set period of time. Others require a lump sum payment for the full principal amount after the expiry of the interest-only payment period.
None of the interest-only mortgage structures require you to work on paying down your principal while making interest payments. In contrast, a fully amortized loan means that at least a portion of each payment helps reduce your principal balance.
Partially amortized loans
A partially amortized loan strikes a balance between fully amortized mortgage options and interest only.
As you make mortgage payments, the funds will cover part of the principal balance and the rest will cover interest costs. But the principal balance will not be fully repaid at the end of the loan term. Along with this, there is often a lump sum payment looming at the end of your loan term.