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What does it mean when something is amortized?

What does it mean when something is amortized?

transitive verb. 1 : to pay off (an obligation, such as a mortgage) gradually usually by periodic payments of principal and interest or by payments to a sinking fund amortize a loan. 2 : to gradually reduce or write off the cost or value of (something, such as an asset) amortize goodwill amortize machinery.

Why is it called amortization?

To amortize a loan means “to kill it off”. In accounting, amortization refers to charging or writing off an intangible asset’s cost as an operational expense over its estimated useful life to reduce a company’s taxable income.

What is the meaning of monthly amortization?

Related Definitions

Monthly Amortization Payment means a payment of principal of the Term Loans in an amount equal to (x) the then-outstanding principal amount (including any PIK Interest) divided by (y) the number of months left until the Maturity Date.

What is the meaning of pay interest?

Interest is the price you pay to borrow money or the cost you charge to lend money. Interest is most often reflected as an annual percentage of the amount of a loan. This percentage is known as the interest rate on the loan.

What are the roots of the word amortize and what practical application does it have to mortgages?

Amortization comes from that same Old French root as “mortgage” and means the “killing down” or “extinguishing” of debt over time. The beauty of amortization lies in its consistency. Every single monthly mortgage payment over the 30-year term of the loan is exactly the same amount.

What is an example of amortization?

You have a $5,000 loan outstanding. If you pay $1,000 of the principal every year, $1,000 of the loan has amortized each year. You should record $1,000 each year in your books as an amortization expense.

What is another term for amortization?

payment. nounfee; installment of fee. acquittal. advance. alimony.

What are two types of amortization?

Amortization Schedules: 5 Common Types of Amortization

  • Full amortization with a fixed rate.
  • Full amortization with a variable rate.
  • Full amortization with deferred interest.
  • Partial amortization with a balloon payment.
  • Negative amortization.

What are the 2 different types of interest rates?

When borrowing money with a credit card, loan, or mortgage, there are two interest rate types: Fixed Rate Interest and Variable Rate Interest.

What are the types of interest?

What are the Different Types of Interest? The three types of interest include simple (regular) interest, accrued interest, and compounding interest.

What’s the difference between depreciation and amortization?

Amortization and depreciation are two methods of calculating the value for business assets over time. Amortization is the practice of spreading an intangible asset’s cost over that asset’s useful life. Depreciation is the expensing a fixed asset as it is used to reflect its anticipated deterioration.

What are amortized loans examples?

Examples of typically amortized loans include mortgages, car loans, and student loans.


  • With amortized loans, the principal of the loan is paid down gradually, typically through equal monthly installments.
  • A portion of each monthly payment goes towards interest and represents the cost of borrowing.

What are the 4 types of interest?

Here’s a breakdown of the various forms of interest, and how each might impact consumers seeking credit or a loan.

  • Fixed Interest.
  • Variable Interest.
  • Annual Percentage Rate (APR)
  • The Prime Rate.
  • The Discount Rate.
  • Simple Interest.
  • Compound Interest.

What are the 3 types of interest?

There are essentially three main types of interest rates: the nominal interest rate, the effective rate, and the real interest rate.

What are the 2 types of interest?

Two main types of interest can be applied to loans—simple and compound. Simple interest is a set rate on the principal originally lent to the borrower that the borrower has to pay for the ability to use the money. Compound interest is interest on both the principal and the compounding interest paid on that loan.

What happens when a loan is amortized?

An amortized loan is a form of financing that is paid off over a set period of time. Under this type of repayment structure, the borrower makes the same payment throughout the loan term, with the first portion of the payment going toward interest and the remaining amount paid against the outstanding loan principal.

What are the two types of interest rates?

Interest rates come in two basic types: fixed and adjustable. This choice affects: Whether your interest rate can change. Whether your monthly principal and interest payment can change and its amount.

What is a good example of an amortized loan?

An amortized loan payment first pays off the relevant interest expense for the period, after which the remainder of the payment is put toward reducing the principal amount. Common amortized loans include auto loans, home loans, and personal loans from a bank for small projects or debt consolidation.