What is a Partially Amortizing Loan?

A partially amortizing loan has also been called a balloon loan because of the large payment that is due at the end of the loan term.

What It Is

When you have a partially amortizing loan, then all of the interest is paid with the payments that you make, but only a portion of the principal. At the end of the loan term you will end up with a balance that must be paid in full at that time.

How it Works

We end up with this significant balance due at the maturity of the loan because what happens, is the mortgage is written for perhaps 10 years, but the loan is actually amortized for a longer period of time, perhaps 15 or even 20 years and the result is a significantly large balloon payment.

Borrowers taking this type of a mortgage loan do so in order that they may keep the payments lower, and they usually intend to refinance the loan at some point in time before the loan actually matures.