Amortization/Amortize

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You will most likely encounter this term in connection with a loan, typically when you obtain a mortgage to buy property. For example, if you have a 30-year mortgage, meaning you have 30 years to repay the loan through a combination of principal and interest payments, you could say that the loan is amortized over 30 years; in other words, the loan is gradually reduced over that time until it has been paid off. An amortization schedule is a detailed description of how many payments are needed to repay the debt, and will also show the respective amounts of principal and interest that make up the payments. In a typical amortization schedule the initial payments will consist mostly of interest and only a small amount of principal, but by the end of the loan period these proportions will be reversed and the bulk of the payment will be principal. The word comes from the French word "mort" meaning death, so you can think of it as gradually "killing off" the loan over 30 years, or however long the loan period is. ("Amortize" is also a term used in accounting, but in a more specialized way.) See also Negative Amortization.