# Fully Amortizing Payment

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## Definition of 'Fully Amortizing Payment'

A fully amortizing payment is a loan payment that includes both principal and interest. The principal is the amount of money borrowed, and the interest is the cost of borrowing that money. With a fully amortizing payment, the amount of principal and interest in each payment is the same, except for the final payment, which is entirely principal. This means that over time, the amount of principal owed decreases, and the amount of interest owed increases.

Fully amortizing payments are often used for mortgages, auto loans, and other types of loans. They are a good option for borrowers who want to pay off their loans over time and who want to know exactly how much they will owe each month.

There are a few things to keep in mind when considering a fully amortizing payment. First, the monthly payments will be higher than with a loan that has a balloon payment or a shorter term. Second, the interest rate on a fully amortizing loan will be higher than on a loan with a shorter term. Third, the total amount of interest paid over the life of the loan will be higher than with a loan with a shorter term.

Despite these drawbacks, fully amortizing payments can be a good option for borrowers who want to pay off their loans over time and who want to know exactly how much they will owe each month.

* The monthly payment on a fully amortizing loan is calculated using the following formula:

```
P = [P * (r / 12) * (1 + r / 12) ^ n] / [(1 + r / 12) ^ n - 1]
```

where:

* P is the principal amount of the loan
* r is the annual interest rate
* n is the number of years of the loan

* The total amount of interest paid over the life of a fully amortizing loan is equal to the principal amount of the loan multiplied by the interest rate.

* The monthly payment on a fully amortizing loan will decrease over time as the principal balance decreases.

* The final payment on a fully amortizing loan will be entirely principal.

If you are considering a fully amortizing loan, it is important to compare the monthly payments and the total amount of interest paid with other types of loans to make sure that it is the best option for you.

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