Amortization

This term means either:

  • The repayment of the principal amount of a loan ahead of its final maturity date. Loans that amortize usually require the borrower to make repayments on stated payment dates. Payment amounts are often specified in a schedule in the loan agreement and are frequently the same on each payment date. The required amount of each amortization payment is usually determined by dividing the total amount of the loan amortization (which may be less than the total amount of the loan) by the number of payment dates that will occur during the term of the loan. Some loans do not fully amortize during their term, leaving the borrower to make a final payment (called a bullet payment) at maturity.

  • The ratable deduction for the cost of certain intangible property (such as goodwill, an agreement not to compete, and research and mining exploration costs) over a specified period of time.

The repayment or cost is said to be amortized over a period of time.

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