Mortgages Analyzed
Mortgages Analyzed
Mortgages Analyzed
 
Amortization

What is Amortization?

Definition
Amortization is the process of establishing equal periodic payments such that the payments will pay off the entire principal and interest by the end of the loan term.
What It Means
In a fully amortized loan, each periodic payment will pay the interest accrued in the previous period and a portion of principal. As a result, the interest cost in the subsequent period is smaller than the previous period. Over time the proportion of payments that is applied towards principal increases with the effect that the last payment will pay off all remaining principal balance. Amortization creates equal monthly payments, sometimes known as equal monthly instalments (EMI). With the equal payments, the borrower can plan the cash flows and build a budget.
Category
Finance
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Related Terms

  • Accrued Interest: The interest earned for the period of time that has elapsed since interest was last paid.... Read More
  • Amortization Period: The amortization period is the time period during which the entire principal amount will be paid off.... Read More
  • Full Prepayment: Full prepayment refers to the payment made prior to the end of the loan term that will completely pay off the entire loan obligation.... Read More
  • Partial Prepayment: Partial prepayment refers to the amounts paid over and above the required monthly payment that are applied towards principal balance, but are not larg... Read More
  • Prepayment: Prepayment refers to the amounts paid over and above the required monthly payment that are applied towards principal balance.... Read More
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