Amortization

Method of repayment where the borrowed amount is paid back at first, against most of the interest, and during later payments, against the principal.

Very important for the loanee, watch out for negative amortization: in which the payment schedule doesn't allow each payment to cover the interest occured from payment to payment, thereby causing the principal to grow, and leaving the loanee with a situation of owing more than when taking out the loan.

A*mor`ti*za"tion (#), n. [LL. amortisatio, admortizatio. See Amortize, and cf. Admortization.]

1. Law

The act or right of alienating lands to a corporation, which was considered formerly as transferring them to dead hands, or in mortmain.

2.

The extinction of a debt, usually by means of a sinking fund; also, the money thus paid.

Simmonds.

© Webster 1913.