• In portfolio accounting, periodic charges made against interest income on premium bonds in anticipation of receipt of the call price at call or of par value at maturity. In the context of a loan, amortization means the annuity payments that pay off the loan in full.

 Embedded terms in definition
Call price
Par value
Premium bond
 Referenced Terms
 Amortization: The systematic expensing of a portion of the cost of a fixed asset against sales revenue.(1) The paying off of debt in regular installments over a period of time. (2) The deduction of certain capital expenses over a specific period of time.The repayment of a loan by installments.Is the periodic pay down of principal. This is a common feature of most mortgages. Amortize also refers to the accounting write down or reduction in an intangible asset. This creates a charge against income. Amortization can also refer to the reduction in the cost basis of a bond purchased at a premium to par. Sometimes, amortization is used as a synonym for depreciation or other write down of an asset or liability. In the later capacity it tends to apply to intangible assets. See Interest Impact on Installment to Amortize or Amortization.The process of reducing a debt through installment payments of principal and interest.

 Depreciation: Is the charge against revenues which represents a prorated capitalization of the cost of an asset. For example, if a computer is expected to have a useful life of 5 years and cost $6,000 with no salvage value, then the annual, straight-line depreciation would be $1,200 per year. If the same computer had an estimated salvage or residual value of $500, then the annual depreciation would be $1,100 ($6,000 -500 = $5,500 divided by 5 years).A non-cash expense that provides a source of free cash flow. Amount allocated during the period to Amortize the cost of acquiring Long term assets over the useful life of the assets.(1) An expense recorded regularly on a company's books to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases Free Cash Flow while decreasing the amount of a company's reported earnings. (2) A decrease in the value of a particular currency relative to other currencies.The systematic charging of a portion of the costs of fixed assets against annual revenues over time.

 Graduated payment mortgage: Is a mortgage which frequently has relatively low payments in its early life. These relatively low payments are often insufficient to Amortize the principal. Therefore with the passage of time the payment schedule is stepped-up to paydown the early negative amortization, service the interest requirement, and paydown the total principal balance.

 Graduated payment mortgages: Abbreviated GPMs. A type of stepped-payment loan in which the borrower's payments are initially lower than those on a comparable level-rate mortgage. The payments are gradually increased over a predetermined period (usually 3,5, or 7 years) and then are fixed at a level-pay schedule which will be higher than the level-pay amortization of a level-pay mortgage originated at the same time. The difference between what the borrower actually pays and the amount required to fully Amortize the mortgage is added to the unpaid principal balance.

 Interest calculations and related formulas: Are quite varied yet interrelated. Some of the standard computations are:
  • Interest Compounded Annually
  • Interest Compounded Continuously
  • Interest Discounted Annually (Present Value of Reversion)
  • Interest Discounted Continuously
  • Interest Impact on Accumulation of 1 Per Period
  • Interest Impact on Instalment to Amortize or Amortization
  • Interest Impact on Present Value of Ordinary Annuity of 1 Per Period
  • Interest Impact on Sinking Fund Factor

These formulae are predicated on calculating values basis 1 unit of currency. Here, it is one dollar. To adjust for other amounts such as five hundred or one thousand dollars then multiply the resulting factor by 500 or 1,000, respectively. By solving for the appropriate factor based on 1.0000 simplifies the analysis and verification process.

 Related Terms
 Interest impact on instalment to amortize or amortization

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