| Amortization: The gradual payment of debt over time through regular installments that include principal and interest. This method ensures that the debt is fully repaid by the end of a specified period, with each payment reducing the outstanding balance. Abbreviation Amort. Is a commonly used abbreviation for amortization in financial and accounting contexts. Synonyms Debt repayment Installment payment Paydown Gradual payoff Scheduled reduction Examples “The amortization schedule for the mortgage shows the breakdown of principal and interest over 15 years.” “Regular amortization payments help borrowers avoid large balloon payments at the end of the loan term.” “By choosing an accelerated amortization plan, the company reduced the overall interest cost of the loan.” |
Applications/Uses
- Mortgage Payments
- Amortization is commonly applied in home loans, where monthly payments gradually reduce the loan balance over a fixed term (e.g., 15 or 30 years).
- Use Case: “The borrower opted for a 30-year amortization schedule to keep monthly payments affordable.”
- Auto Loans
- Car loans are typically amortized, with fixed monthly payments covering both the loan principal and interest.
- Use Case: “The car loan’s amortization schedule ensures the loan is paid off in 5 years.”
- Business Loans
- Companies often amortize debts over time to manage cash flow effectively while repaying loans.
- Use Case: “The small business has an amortized loan, repaid in equal installments over 10 years.”
- Bond Premiums and Discounts
- Amortization is used in accounting to spread out the premium or discount of bonds over their lifespan.
- Use Case: “The bond premium was amortized annually over the bond’s term.”
- Depreciation of Intangible Assets
- Though different, amortization also refers to spreading out the cost of intangible assets like patents or copyrights over their useful life.
- Use Case: “The software’s development cost is being amortized over five years.”
Synonyms:
Paydown
