Self-amortizing loan

Self-Amortizing Loan

A loan where the borrower pays for part of the principal and the interest each month. A self-amortizing loan differs from an interest-only mortgage, where the borrower does not make principal payments over the life of the mortgage. An advantage of a self-amortizing loan is the fact that the borrower does not have to make a lump sum payment of the principal at maturity (or refinance at a potentially higher interest rate). However, self-amortizing loans have higher monthly payments than other types of loans. See also: Self-amortizing mortgage.

Self-amortizing loan.

A self-amortizing loan is one that's paid off over a specific period of time as the borrower makes regular installment payments.

Part of each payment covers some interest on the loan, and the rest is applied to the principal. When the last payment is made, both principal and interest have been paid in full.

Self-amortizing loans can be bundled together and offered for sale as debt securities, such as those available through Ginnie Mae (GNMA). If you buy GNMA or similar bonds, you get back part of your principal as well as the interest you've earned each time you receive an interest payment. There is no lump-sum repayment of principal when the bond matures.