What is amortization

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Can anybody out here explain what is amortization? I need the info.

Guest 0.10 Dollars($)

Hi Sophia,

Hope I can provide you with some information on the topic.

Amortization is the gradual repayment of a mortgage by installments. Calculations are done for payments of both principal and interest so that the debt can be paid off at the end of a fixed period of time.

It is a distribution of a single lump-sum cash flow into many smaller cash flow installments for easier repayment. Here, each repayment installment consists of both principal and interest. Amortization is mainly used in loan repayments (example; mortgage) and sinking funds. The payments are generally of equal amounts.

Your principal and interest gets reduced in equal installment payments at specific intervals over a definite period. Generally with each payment, a part of the money which was originally borrowed is paid back (the principal) plus interest on the declining balance of the principal.

The amount of the periodic payments depends on the principal, the interest rate and the length of time that is allowed for repayment. In this way the loan is paid off in the specified period.

I shall be glad if you benefit from this information.

Regards,
Blue

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