Self-Amortizing Loan

AAA

DEFINITION of 'Self-Amortizing Loan'

A loan for which the periodic payments consist of both principal and interest such that the loan will be paid off by the end of a scheduled term. Assuming the loan is a fixed-rate loan, the amount of each payment and the breakdown of the principal and the interest that comprise each payment can be known in advance. If the loan is an adjustable-rate mortgage, it can still be self-amortizing, but because the interest rate is subject to change, the amount and breakdown of each payment cannot be known in advance.

INVESTOPEDIA EXPLAINS 'Self-Amortizing Loan'

Most traditional mortgages are self-amortizing loans; however, interest-only mortgages and payment option ARMs are examples of mortgages that are not self-amortizing. In an interest-only mortgage, the payments for a certain number of years consists only of interest, after which the mortgage becomes self-amortizing for the remaining term. On a payment option ARM, interest-only or negatively amortizing payments can be made at first, but at some point, the mortgage must begin to self-amortize. Payment option ARMs have triggers that reset the minimum payment option periodically to a self-amortizing payment to ensure that the mortgage will be paid off by the end of its scheduled term.

RELATED TERMS
  1. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  2. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  5. Fully Amortizing Payment

    A periodic loan payment, part of which is principal and part ...
  6. Total Annual Loan Cost (TALC)

    The projected total cost that a reverse mortgage holder should ...
Related Articles
  1. Credit & Loans

    How Mortgage Refinancing Affects Your ...

  2. Options & Futures

    Make A Risk-Based Mortgage Decision

  3. Home & Auto

    Option ARMs: American Dream Or Mortgage ...

  4. You're probably moving a lot and still paying off your student loans. Is it crazy to get a mortgage in your 20s? Here's how to decide.
    Credit & Loans

    Does A Mortgage Make Sense If You're ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center