amortization meaning for loan
The first is if a borrower refinances a loan, thereby changing the interest rate, repayment period and sometimes, through a down payment or a cash-out refinance, the balance as well. The new payments must be based on the terms of the refinanced loan. Reamortization changes a borrower's monthly payment amount so that the payments repay the accrued interest and full principal of a loan by a specific date. amortization. n. 1. (Banking & Finance). a. the process of amortizing a debt. b. the money devoted to amortizing a debt. Amortization Schedule: This is a table that shows the mortgage payment, broken down by interest and amortization and the loan balance. Schedules prepared by lenders will also show tax and insurance payments if made by the lender and the balance of the tax/ insurance escrow account. Amortization on Standard Loans: Except for simple interest loans, which are discussed below, the accounting for amortized home loans assumes that there are only 12 days in a year, consisting of the first day of each month. DEFINITION of 'Amortization'. 1. The paying off of debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a mortgage or car loan. 2. The spreading out of capital expenses for intangible assets over a specific period of time (usually over the asset's useful life) for accounting and tax purposes. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortized loans typically have the same monthly payment for the whole repayment term, but there are situations that require the lender to recalculate payments so the loan is paid off by a specific end date. Calculate the monthly payment manually with the formula P[r(1+r)^n]/{[(1+r)^n]-1}, where P is the principal amount owed, r is the decimal monthly interest rate, and n is the number of monthly payments remaining. For a simpler method, use an online amortization calculator. The scheduled payment is the payment the borrower is obliged to make under the note. The scheduled payment less the interest equals amortization. The loan balance declines by the amount of the amortization, plus the amount of any extra payment. If such payment is less than the interest due, the balance rises, which is negative amortization. Amortized loans are those that have a fixed repayment term and equal payments each month during that term. Reamortization occurs if at some point the lender recalculates the monthly payments during the repayment term.
The paying off of debt with a fixed repayment schedule in regular installments over a period of time.