Question

What are the major differences between the four CPM loans:

1. Fully Amortizing:
2. Partially Amortizing:
3. Interest Only:
4. Negative Amortizing:

Answer 1

Major differences between above types of payments are can be analysed as follows;

Fully amortizing Payments

• Refers to a type of periodic repayment on a debt.
• Makes payments according to the loan's amortization schedule, the debt is fully paid off by the end of its set term.
• If the loan is a fixed-rate loan, each fully amortizing payment is an equal dollar amount.

Partially amortizing

• Doesn't settle the loan in full.
• It repays it partially.
• The part of the loan that hasn't been repaid yet is called a balloon payment.
• It can either be at the start of the loan or it could be at the end of the loan term.

Interest Only

• Offer an alternative to paying rent, which can be expensive and uncertain.
• If you have irregular income, an interest-only loan can be a good way to manage expenses.
• Make large lump-sum payments to reduce the principal when you have extra funds.

Negative Amortizing

• When you pay, the amount you owe will still go up because you are not paying enough to cover the interest.