amortization legal definition
The interest payment is calculated by multiplying 1/12 of the interest rate times the loan balance in the previous month. 1/12 of .06 is .005. The interest due May 1, therefore, is .005 times $100,000 or $500. The remaining $99.56 is used to reduce the balance to $99,900.44. The New York State Society of Certified Public Accountants offers the following definition of Amortization in a way that is easy for anybody to understand: Gradual and periodic reduction of any amount, such as the periodic writedown of a BOND premium, the cost of an intangible ASSET or periodic payment Of MORTGAGES or other DEBT. Related Legal Terms and Definitions: 1  Amortization Schedule Concept of Amortization Schedule in the context of Real Property A short definition of Amortization Schedule: A schedule showing each payment of a loan to be amortized (see Amortization) and... The term amortization is also used in connection with loans. The amortization of a loan is the rate at which the principal balance will be paid down over time, given the term and interest rate of the note. Shorter note periods will have higher amounts amortized with each payment or period. If the useful life span of the machine is 10 years, the depreciation each year is $100 ($1,000 divided by 10 years). Thus, $100 can be deducted from the business's taxable net income each year for 10 years. Accelerated depreciation provides a larger tax write-off for the early years of an asset. Amortization is the gradual repayment of a debt over a period of time, such as monthly payments on a mortgage loan or credit card balance. To amortize a loan, your payments must be large enough to pay not only the interest that has accrued but also to reduce the principal you owe. Then, to determine the annual depreciation for the asset, the depreciable basis is divided by the estimated life span of the asset. For example, if a manufacturing machine costs $1,200 and is expected to be worth $200 at the end of its useful life, its depreciable basis is $1,000. Amortization Term Concept of Amortization Term in the context of Real Property A short definition of Amortization Term: The time required to pay off a mortgage if no additional principal payments are... Depletion See also An exhaustion or gradual reduction of an asset. What is 'Amortization'. Amortization is the paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan. It also refers to the spreading out of capital expenses for intangible assets over a specific duration (usually over the asset's useful life) for accounting and tax purposes. Amortization Law and Legal Definition. Amortization may refer to a plan to repay a loan in equal installments over a period of time, whereby each periodic payment includes principal and interest, and the amount of the payment applied to the principal gradually increases over time as the interest payments are reduced.
A plan to repay a loan in equal installments over a period of time, whereby each periodic payment includes principal and interest, and the amount of the payment applied to the principal gradually increases over time as the interest payments are reduced.