Amortization
Amortization is the gradual elimination of a liability, such as a mortgage, which is done through the making of regular payments over a set period of time. This set period of time is referred to as the amortization period, and is normally based on the number of years it will take for the borrower to complete full repayment of the mortgage.
The amortization period may in some instances be longer than the term of the loan. For instance, a mortgage may have a term of four years, while its amortization period may be as long as 30 years. In other words, amortization is the paying off of the principal balance of the mortgage, usually through a combination of equal periodic payments and the extra payments of the principal at irregular intervals. Amortization is normally associated with a target period over which the initial combined payment is calculated.
Spotlight on Amortization
How to Calculate Amortization
Amortization is described as the elimination or paying off of a debt over time with periodic payments. If you are making mortgage payments, a portion of those payments will cover interest while the rest of the payment goes toward the principle balance. Since the majority of your payments at the b... Continue Reading »
How to Calculate Amortization
Amortization is described as the elimination or paying off of a debt over time with periodic payments. If you are making mortgage payments, a portion of those payments will cover interest while the rest...
About Amortization
Amortization sometimes relates to the gradual expensing of capital assets including plant and equipment, in order to allocate the cost over their depreciable life. Capital assets are tangible property used in the operations of a business, but which aren't expected to be consumed or converted into cash in the day-to-day running of the business. The capital assets are normally represented on the balance sheet at their net book value. It should be noted that amortization only reduces the pre-tax income and not cash.
An amortization schedule calculator is a loan calculator which enables you to estimate your monthly loan payments. It also helps you to determine how much of your mortgage repayments will go toward the principal, as well as how much will go toward interest. The amortization calculator is used to generate an amortization schedule for the current mortgage, showing you how much interest and principal balance you will pay. Some are even able to determine the impact of any principal prepayments. Moreover, it helps you to create a complete payment schedule over the life of your loan, by showing you the principal and interest on a monthly or yearly basis. Basically, it shows you how much money you can save through the repayment of the mortgage principal. When using the amortization calculator, all you need to do is input your loan amount, interest rate, loan term and repayment commencement date, then click the button to calculate.
For most mortgages, the standard amortization period is 30 years. In Canada, the maximum amortization period allowed is 40 years.