What is Amortization?

Amortization is like giving a life span to a financial obligation, over a set number of years, and gradually killing-off the obligation with set payments.

Amortization is the calculation of a fixed payment schedule over a set number of years to allow the repayment of a loan, such as a home mortgage. From an accounting standpoint, it can refer to the practice of spreading-out the cost of any intangible asset over time. For example, the IRS will allow a taxpayer to amortize the premium of a bond for deductions.

Amortization is similar to depreciation, but depreciation is used for tangible assets. Calculators that can help consumers calculate amortization are widely available on the internet.