When it comes to loans, understanding the different types of payment structures can be crucial. One common type is the interest-only loan. In this setup, borrowers are only required to pay the interest on the loan for a specified period, often for the first few years. This means that during this initial period, they are not paying down the principal balance. The opposite of an interest-only loan is a fully amortizing loan, where each payment covers both the interest and a portion of the principal. With a fully amortizing loan, the borrower is on track to pay off the entire loan balance by the end of the term.
In the case of an interest-only loan, the borrower may find themselves in a situation where the principal balance remains the same or even increases during the interest-only period. This can result in higher payments later on when the loan enters the amortizing phase, as the borrower will need to pay off the entire remaining balance in a shorter period. Additionally, interest-only loans can come with higher interest rates compared to fully amortizing loans, as they pose a higher risk to lenders due to the delayed principal repayment.
In summary, the opposite of an interest-only loan is a fully amortizing loan. While interest-only loans can provide lower initial payments, borrowers should be aware of the potential risks, such as a larger remaining balance at the end of the interest-only period and higher interest rates. Fully amortizing loans, on the other hand, ensure that the borrower pays down both interest and principal with each payment, leading to the full repayment of the loan by the end of its term.
(Response: The opposite of an interest-only loan is a fully amortizing loan.)