Amortization is commonly used in most loan scenarios where the borrower makes periodic installments, such as with a mortgage or a car loan. With an amortizing loan, the borrower repays the loan's principal balance — the original amount they borrowed — plus the interest owed on the loan over time up to the maturity date, leaving no balloon payment. Amortization is different from simple interest or interest-only loan structures.
Types of loans that use amortization include mortgages, car loans, and HUD’s 221(d)(4) construction loan.