What is characteristic of a fully amortized loan?

A fully amortized loan is structured so that each payment made during the life of the loan consists of both principal and interest. This means that over time, as you make your regular monthly payments, you are not only paying interest on the loan amount but also gradually reducing the principal balance.

As the loan progresses, the portion of each payment that goes toward interest decreases while the portion that reduces the principal increases. This leads to the loan being fully paid off at the end of the term, ensuring that no remaining balance is left due at maturity.

This characteristic distinguishes fully amortized loans from options such as interest-only loans, where payments cover only the interest owed throughout the loan period, or balloon loans, where payments may not fully amortize over the term and a lump sum is required at maturity. Additionally, unpredictable payment fluctuations are more typical of adjustable-rate mortgages rather than the stable structure of a fully amortized loan, where payments remain consistent throughout the loan term.