What Is Amortization?

Amortization is the gradual repayment of a loan through regular payments that cover both interest and the loan principal.

Amortization Overview

Amortization breaks a loan into fixed payments over a set period, such as 15 or 30 years for a mortgage. Early payments primarily go toward interest, while later ones pay down more principal. It also refers to spreading the cost of intangible assets, like patents, over their useful life in accounting. For consumers, understanding amortization helps in comparing loans and planning repayment. For businesses, it affects financial statements and tax calculations.

Key Points

• Amortization is the process of paying off debt over time with scheduled payments.
• Each payment includes interest and principal.
• Common in mortgages, auto loans, and business accounting.