Definition - What does Amortization mean?

Amortization is a debt repayment method in which equal payments are made in intervals. These intervals are commonly made on a monthly basis. In a legal context, lenders commonly offer "amortized loans," which are legally enforceable upon the contract being signed. Car loans and mortgages commonly come in amortized fashions.

Justipedia explains Amortization

In an amortization loan repayment, a higher percentage of interest is repaid per payment in the beginning of the repayment period. This is because the amount of interest owed gradually goes down over time. Then, more money is applied to the principal. For example, a man who is just starting to pay back an amortized loan may pay $500 out of a $1,000 monthly bill to interest. However, after a year, that number may go down to just $350 per month to interest.

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