amortization
A method for computing equal periodic payments for an installment loan.
Amortization is a financial process in which a debt or loan is paid off over time in equal installment payments. In other words, it is the process of spreading out the cost of an asset or a liability over a period of time.
During the amortization process, the interest and principal payments are both included in each installment payment. At the beginning of the loan or mortgage, the majority of the payments go towards paying off the interest. However, as time goes on, the amount paid towards the principal increases, and the amount paid towards the interest decreases.
To calculate the amount of each payment and the breakdown between interest and principal, an amortization schedule is created. This schedule outlines the payment due date, the payment amount, the interest payment, the principal payment, and the remaining balance after each payment.
Overall, amortization is an important financial tool that helps borrowers pay off long-term debts over time in an organized and manageable way.
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