Self-Amortizing Loan

A loan with the kind of self-control deficit you sometimes see in monkeys or small children. Like, "Reggie, we're in public...stop amortizing yourself."

Actually, it's nothing as shameful as that. Instead, the self-amortizing loan is one where the principal and interest are broken up into regular payments (usually monthly). Once all the payments are made, the loan is paid back; the interest and principal are both included in the payment schedule.

Typically, a mortgage works like this: make your payments every month and, at the end of 30 years (or 15 years, or whatever the term of your mortgage happens to be), everything is squared away. The alternative to this is something like the interest-only mortgage. In this formulation, the interest gets paid off, but the principal remains unpaid. Or a loan can be structured to have regular payments for a period of time, followed by a balloon payment at some point.

These won't happen with a self-amortizing loan. It includes all principal and interest in its regular payments.