What Is a Fully Amortizing Payment?

A fully amortizing payment refers to a type of periodic repayment on a debt. If the borrower makes payments according to the loan's amortization schedule, the debt is fully paid off by the end of its set term. If the loan is a fixed-rate loan, each fully amortizing payment is an equal dollar amount. If the loan is an adjustable-rate loan, the fully amortizing payment changes as the interest rate on the loan changes.

1:32

Amortization Schedule

Key Takeaways

  • A fully amortizing payment is a periodic loan payment made according to a schedule that ensures it will be paid off by the end of the loan's set term.
  • Loans for which fully amortizing payments are made are known as self-amortizing loans.
  • Traditional fixed-rate, long-term mortgages typically take fully amortizing payments.
  • Interest-only payments, which are typical of some adjustable-rate mortgages, are the opposite of fully amortizing payments.

Understanding a Fully Amortizing Payment

Loans for which fully amortizing payments are made are known as self-amortizing loans. Mortgages are typical self-amortizing loans, and they usually carry fully amortizing payments. Homebuyers can see how much they can expect to pay in interest over the life of the loan using an amortization schedule provided by their lender.

Fully amortizing payments vs. interest-only payments

An interest-only payment is the opposite of a fully amortizing payment. If our borrower is only covering the interest on each payment, they are not on the schedule to pay the loan off by the end of its term. If a loan allows the borrower to make initial payments that are less than the fully amortizing payment, then the fully amortizing payments later in the life of the loan are significantly higher. This is typical of many adjustable-rate mortgages (ARMs).

To illustrate, imagine someone takes out a $250,000 mortgage with a 30-year term and a 4.5% interest rate. However, rather than being fixed, the interest rate is adjustable, and the lender only assures the 4.5% rate for the first five years of the loan. After that point, it adjusts automatically.

If the borrower were making fully amortizing payments, they would pay $1,266.71, as indicated in the first example, and that amount would increase or decrease when the loan's interest rate adjusts. However, if the loan is structured so the borrower only pays interest payments for the first five years, his monthly payments are only $937.50 during that time. But they are not fully amortizing. As a result, after the introductory interest rate expires, his payments may increase up to $1,949.04. By making non-fully amortizing payments early in the life of the loan, the borrower essentially commits to making larger fully amortizing payments later in the loan's term.

Important

If you have an interest-only adjustable-rate mortgage (ARM), refinancing it before the rate adjusts could help to avoid a significant jump in monthly payments.

Fully Amortized Loan Payment Example

To illustrate a fully amortizing payment, imagine a man takes out a $250,000 30-year fixed-rate mortgage with a 4.5% interest rate, and his monthly payments are $1,266.71. At the beginning of the loan's life, the majority of these payments are devoted to interest and just a small part to the loan's principal; near the end of the loan's term, the majority of each payment covers principal, and only a small portion is allocated to interest. Because these payments are fully amortizing, if the borrower makes them each month, they pay off the loan by the end of its term.

Here's how the loan amortization schedule would look for years one through five of the loan.

Amortization Schedule for a 30-Year $250,000 Loan at 4.5%
Payment Date Payment Principal Interest Total Interest Balance
Nov 2021 $1,266.71 $329.21 $937.50 $937.50 $249,670.79
Dec 2021 $1,266.71 $330.45 $936.27 $1,873.77 $249,340.34
Jan 2022 $1,266.71 $331.69 $935.03 $2,808.79 $249,008.65
Feb 2022 $1,266.71 $332.93 $933.78 $3,742.57 $248,675.72
Mar 2022 $1,266.71 $334.18 $932.53 $4,675.11 $248,341.54
Apr 2022 $1,266.71 $335.43 $931.28 $5,606.39 $248,006.11
May 2022 $1,266.71 $336.69 $930.02 $6,536.41 $247,669.42
Jun 2022 $1,266.71 $337.95 $928.76 $7,465.17 $247,331.47
Jul 2022 $1,266.71 $339.22 $927.49 $8,392.67 $246,992.25
Aug 2022 $1,266.71 $340.49 $926.22 $9,318.89 $246,651.75
Sep 2022 $1,266.71 $341.77 $924.94 $10,243.83 $246,309.98
Oct 2022 $1,266.71 $343.05 $923.66 $11,167.49 $245,966.93
Nov 2022 $1,266.71 $344.34 $922.38 $12,089.87 $245,622.60
Dec 2022 $1,266.71 $345.63 $921.08 $13,010.95 $245,276.97
Jan 2023 $1,266.71 $346.92 $919.79 $13,930.74 $244,930.04
Feb 2023 $1,266.71 $348.23 $918.49 $14,849.23 $244,581.82
Mar 2023 $1,266.71 $349.53 $917.18 $15,766.41 $244,232.29
Apr 2023 $1,266.71 $350.84 $915.87 $16,682.28 $243,881.44
May 2023 $1,266.71 $352.16 $914.56 $17,596.84 $243,529.29
Jun 2023 $1,266.71 $353.48 $913.23 $18,510.07 $243,175.81
Jul 2023 $1,266.71 $354.80 $911.91 $19,421.98 $242,821.00
Aug 2023 $1,266.71 $356.13 $910.58 $20,332.56 $242,464.87
Sep 2023 $1,266.71 $357.47 $909.24 $21,241.80 $242,107.40
Oct 2023 $1,266.71 $358.81 $907.90 $22,149.71 $241,748.59
Nov 2023 $1,266.71 $360.16 $906.56 $23,056.26 $241,388.43
Dec 2023 $1,266.71 $361.51 $905.21 $23,961.47 $241,026.93
Jan 2024 $1,266.71 $362.86 $903.85 $24,865.32 $240,664.06
Feb 2024 $1,266.71 $364.22 $902.49 $25,767.81 $240,299.84
Mar 2024 $1,266.71 $365.59 $901.12 $26,668.94 $239,934.25
Apr 2024 $1,266.71 $366.96 $899.75 $27,568.69 $239,567.29
May 2024 $1,266.71 $368.34 $898.38 $28,467.07 $239,198.96
Jun 2024 $1,266.71 $369.72 $897.00 $29,364.06 $238,829.24
Jul 2024 $1,266.71 $371.10 $895.61 $30,259.67 $238,458.13
Aug 2024 $1,266.71 $372.50 $894.22 $31,153.89 $238,085.64
Sep 2024 $1,266.71 $373.89 $892.82 $32,046.71 $237,711.75
Oct 2024 $1,266.71 $375.29 $891.42 $32,938.13 $237,336.45
Nov 2024 $1,266.71 $376.70 $890.01 $33,828.14 $236,959.75
Dec 2024 $1,266.71 $378.11 $888.60 $34,716.74 $236,581.64
Jan 2025 $1,266.71 $379.53 $887.18 $35,603.92 $236,202.11
Feb 2025 $1,266.71 $380.96 $885.76 $36,489.68 $235,821.15
Mar 2025 $1,266.71 $382.38 $884.33 $37,374.01 $235,438.77
Apr 2025 $1,266.71 $383.82 $882.90 $38,256.91 $235,054.95
May 2025 $1,266.71 $385.26 $881.46 $39,138.36 $234,669.69
Jun 2025 $1,266.71 $386.70 $880.01 $40,018.37 $234,282.99
Jul 2025 $1,266.71 $388.15 $878.56 $40,896.93 $233,894.84
Aug 2025 $1,266.71 $389.61 $877.11 $41,774.04 $233,505.23
Sep 2025 $1,266.71 $391.07 $875.64 $42,649.68 $233,114.16
Oct 2025 $1,266.71 $392.54 $874.18 $43,523.86 $232,721.63
Nov 2025 $1,266.71 $394.01 $872.71 $44,396.57 $232,327.62
Dec 2025 $1,266.71 $395.48 $871.23 $45,267.80 $231,932.13
Jan 2026 $1,266.71 $396.97 $869.75 $46,137.54 $231,535.17
Feb 2026 $1,266.71 $398.46 $868.26 $47,005.80 $231,136.71
Mar 2026 $1,266.71 $399.95 $866.76 $47,872.56 $230,736.76
Apr 2026 $1,266.71 $401.45 $865.26 $48,737.82 $230,335.31
May 2026 $1,266.71 $402.96 $863.76 $49,601.58 $229,932.35
Jun 2026 $1,266.71 $404.47 $862.25 $50,463.83 $229,527.89
Jul 2026 $1,266.71 $405.98 $860.73 $51,324.56 $229,121.90
Aug 2026 $1,266.71 $407.51 $859.21 $52,183.77 $228,714.40
Sep 2026 $1,266.71 $409.03 $857.68 $53,041.44 $228,305.36
Oct 2026 $1,266.71 $410.57 $856.15 $53,897.59 $227,894.79
Nov 2026 $1,266.71 $412.11 $854.61 $54,752.19 $227,482.69

Now, here's what the amortization schedule looks like for the last five years of the loan.

Amortization Schedule for a 30-Year $250,000 Loan at 4.5%
Payment Date Payment Principal Interest Total Interest Balance
Oct 2046 $1,266.71 $1,008.14 $258.58 $197,959.70 $67,945.72
Nov 2046 $1,266.71 $1,011.92 $254.80 $198,214.49 $66,933.80
Dec 2046 $1,266.71 $1,015.71 $251.00 $198,465.50 $65,918.09
Jan 2047 $1,266.71 $1,019.52 $247.19 $198,712.69 $64,898.57
Feb 2047 $1,266.71 $1,023.34 $243.37 $198,956.06 $63,875.22
Mar 2047 $1,266.71 $1,027.18 $239.53 $199,195.59 $62,848.04
Apr 2047 $1,266.71 $1,031.03 $235.68 $199,431.27 $61,817.01
May 2047 $1,266.71 $1,034.90 $231.81 $199,663.08 $60,782.11
Jun 2047 $1,266.71 $1,038.78 $227.93 $199,891.02 $59,743.33
Jul 2047 $1,266.71 $1,042.68 $224.04 $200,115.05 $58,700.65
Aug 2047 $1,266.71 $1,046.59 $220.13 $200,335.18 $57,654.07
Sep 2047 $1,266.71 $1,050.51 $216.20 $200,551.38 $56,603.56
Oct 2047 $1,266.71 $1,054.45 $212.26 $200,763.65 $55,549.11
Nov 2047 $1,266.71 $1,058.40 $208.31 $200,971.96 $54,490.70
Dec 2047 $1,266.71 $1,062.37 $204.34 $201,176.30 $53,428.33
Jan 2048 $1,266.71 $1,066.36 $200.36 $201,376.65 $52,361.97
Feb 2048 $1,266.71 $1,070.36 $196.36 $201,573.01 $51,291.62
Mar 2048 $1,266.71 $1,074.37 $192.34 $201,765.35 $50,217.25
Apr 2048 $1,266.71 $1,078.40 $188.31 $201,953.67 $49,138.85
May 2048 $1,266.71 $1,082.44 $184.27 $202,137.94 $48,056.41
Jun 2048 $1,266.71 $1,086.50 $180.21 $202,318.15 $46,969.90
Jul 2048 $1,266.71 $1,090.58 $176.14 $202,494.29 $45,879.33
Aug 2048 $1,266.71 $1,094.67 $172.05 $202,666.34 $44,784.66
Sep 2048 $1,266.71 $1,098.77 $167.94 $202,834.28 $43,685.89
Oct 2048 $1,266.71 $1,102.89 $163.82 $202,998.10 $42,583.00
Nov 2048 $1,266.71 $1,107.03 $159.69 $203,157.79 $41,475.97
Dec 2048 $1,266.71 $1,111.18 $155.53 $203,313.32 $40,364.79
Jan 2049 $1,266.71 $1,115.35 $151.37 $203,464.69 $39,249.45
Feb 2049 $1,266.71 $1,119.53 $147.19 $203,611.88 $38,129.92
Mar 2049 $1,266.71 $1,123.73 $142.99 $203,754.86 $37,006.20
Apr 2049 $1,266.71 $1,127.94 $138.77 $203,893.64 $35,878.25
May 2049 $1,266.71 $1,132.17 $134.54 $204,028.18 $34,746.09
Jun 2049 $1,266.71 $1,136.42 $130.30 $204,158.48 $33,609.67
Jul 2049 $1,266.71 $1,140.68 $126.04 $204,284.51 $32,468.99
Aug 2049 $1,266.71 $1,144.95 $121.76 $204,406.27 $31,324.04
Sep 2049 $1,266.71 $1,149.25 $117.47 $204,523.74 $30,174.79
Oct 2049 $1,266.71 $1,153.56 $113.16 $204,636.89 $29,021.23
Nov 2049 $1,266.71 $1,157.88 $108.83 $204,745.72 $27,863.35
Dec 2049 $1,266.71 $1,162.23 $104.49 $204,850.21 $26,701.12
Jan 2050 $1,266.71 $1,166.58 $100.13 $204,950.34 $25,534.54
Feb 2050 $1,266.71 $1,170.96 $95.75 $205,046.09 $24,363.58
Mar 2050 $1,266.71 $1,175.35 $91.36 $205,137.46 $23,188.23
Apr 2050 $1,266.71 $1,179.76 $86.96 $205,224.41 $22,008.47
May 2050 $1,266.71 $1,184.18 $82.53 $205,306.94 $20,824.29
Jun 2050 $1,266.71 $1,188.62 $78.09 $205,385.04 $19,635.67
Jul 2050 $1,266.71 $1,193.08 $73.63 $205,458.67 $18,442.59
Aug 2050 $1,266.71 $1,197.55 $69.16 $205,527.83 $17,245.04
Sep 2050 $1,266.71 $1,202.04 $64.67 $205,592.50 $16,042.99
Oct 2050 $1,266.71 $1,206.55 $60.16 $205,652.66 $14,836.44
Nov 2050 $1,266.71 $1,211.08 $55.64 $205,708.30 $13,625.36
Dec 2050 $1,266.71 $1,215.62 $51.10 $205,759.39 $12,409.74
Jan 2051 $1,266.71 $1,220.18 $46.54 $205,805.93 $11,189.57
Feb 2051 $1,266.71 $1,224.75 $41.96 $205,847.89 $9,964.82
Mar 2051 $1,266.71 $1,229.35 $37.37 $205,885.26 $8,735.47
Apr 2051 $1,266.71 $1,233.96 $32.76 $205,918.01 $7,501.52
May 2051 $1,266.71 $1,238.58 $28.13 $205,946.15 $6,262.93
Jun 2051 $1,266.71 $1,243.23 $23.49 $205,969.63 $5,019.71
Jul 2051 $1,266.71 $1,247.89 $18.82 $205,988.45 $3,771.82
Aug 2051 $1,266.71 $1,252.57 $14.14 $206,002.60 $2,519.25
Sep 2051 $1,266.71 $1,257.27 $9.45 $206,012.05 $1,261.98
Oct 2051 $1,266.71 $1,261.98 $4.73 $206,016.78 $0.00

As you can see, more of the borrower's monthly payments go toward the principal on the loan as the end of the mortgage term approaches.

Note

Your amortization schedule for a mortgage may also break down what goes toward homeowners' insurance or property taxes if those are escrowed into your loan payments.

Pros and Cons of Fully Amortized Loans

The main advantage of fully amortized loans is the ability to see how your payment is divided up each month on a mortgage or similar loan. This can make planning your budget easier because you'll always know what your mortgage payments will be, assuming you choose a fixed-rate loan option.

The chief disadvantage of fully amortized loans is that they require you to pay the lion's share of interest charges up front. Going back to the fully amortized loan example offered previously, you can see that the majority of what the borrower pays in the first five years of the loan goes toward interest.

If they were to sell the home after five years, then they may have made only a very small dent in the loan balance. If the home hasn't increased significantly in value, they may have very little equity to show for their efforts, making a sale of the home less profitable. The lender is a winner, however, because they've been able to collect those interest payments in the preceding five years.

Tip

If you have a mortgage and you're thinking of refinancing, using an online calculator to find your breakeven point with a fully amortizing loan can help you decide if it's the right move.

Other Types of Loan Payments

In some cases, borrowers may choose to make fully amortizing payments or other types of payments on their loans. In particular, if a borrower takes out a payment option ARM, they receive four different monthly payment options: a 30-year fully amortizing payment, a 15-year fully amortizing payment, an interest-only payment, and a minimum payment. They must pay at least the minimum. However, if they want to stay on track to have the loan paid off in 15 or 30 years, they must make the corresponding fully amortizing payment.

Warning

Making minimum payments could result in a larger loan balance if you're not making a dent in what you owe toward the interest.

FAQs

What Is a Fully Amortizing Loan?

A fully amortizing loan has a set repayment period that will allow the borrower to repay the principal and interest due by a specified date. Fully amortizing loans assume that the borrower makes each scheduled payment in full and on time.

What Is an Amortization Schedule?

An amortization schedule illustrates how a borrower's payments are applied to the principal and interest on a loan over time. With fully amortized loans, the bulk of interest payments are made earlier in the loan term, with more of the payment going toward the principal as you get closer to the end of the loan.

Can You Pay Off a Fully Amortized Loan Early?

Yes, if your lender allows it. Paying off a fully amortized loan ahead of schedule could save money on interest. Keep in mind, however, that your lender may apply a prepayment penalty to recoup any lost interest if you decide to pay a loan off early.