Amortized Loans

Definition of ‘Amortized Loan’

A loan with scheduled periodic payments of both principal and interest. This is opposed to loans with interest-only payment features, balloon payment features and even negatively amortizing payment features.

Borrowers who choose amortized loans are less likely to experience “payment shock” than borrowers who choose loans which are not fully amortized. Payments on loans that are not initially fully amortized must at some point become amortized over the remaining term of the loan in order to repay the outstanding principal balance. The shorter the remaining term, the larger the increase required in the periodic payments to amortize the loan over the remaining term.

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