Amortize Meaning: Definition, Examples, and Translations
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amortize
[əˈmɔːrtɪzaɪz ]
Definition
finance process
To amortize means to gradually pay off a debt over time through scheduled, regular payments. This process often applies to loans, where borrowers repay both the principal and the interest over a specified period. Amortization allows individuals and businesses to manage their cash flow more effectively, as the payments remain consistent throughout the loan term. It can also refer to the gradual reduction of an intangible asset's value over time.
Synonyms
Examples of usage
- The bank allows you to amortize your mortgage over 30 years.
- She decided to amortize the loan in monthly installments.
- The company will amortize the costs of the new equipment over five years.
Translations
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Interesting Facts
Finance
- This process is commonly used in loans and mortgages to allocate payments toward both interest and principal.
- An amortized loan ensures that at the end of the payment period, the debt is entirely paid off, contrasting with an interest-only loan where principal isn't reduced.
- Mortgages are typically amortized over 15 to 30 years, allowing borrowers to make more affordable monthly payments.
Legislation
- In some countries, specific laws regulate how amortization must be calculated, ensuring fairness for borrowers.
- Amortization methods can vary, with 'straight-line' and 'declining balance' being two different approaches in accounting practices.
- Tax regulations often allow businesses to amortize certain costs, affecting how their financial positions are calculated.
Psychology
- Understanding the concept of amortization can reduce financial anxiety by breaking larger debts into smaller, manageable pieces.
- People who track their amortization schedules often feel more control over their financial lives, which can lead to greater financial literacy.
- Emotional responses to debt can be lessened when individuals see a clear plan for repayment over time.
Pop Culture
- Amortization occasionally surfaces in films and TV shows when characters are dealing with loans or mortgages, making it relatable to the audience.
- Financial advisors featured in media often explain amortization as a crucial concept for responsible financial management.
- Some comedians joke about amortizing debts, framing it in humorous ways that highlight the absurdity of large financial obligations.
Origin of 'amortize'
Main points about word origin
- The term comes from the Latin word 'amortizare', meaning 'to kill off', which reflects the idea of 'killing' a debt gradually.
- It was first used in the context of finance in the early 1800s, highlighting its relatively recent adaptation into economic language.
- Related terms include 'amortization schedule', which outlines payments over time and helps manage loans.
The term 'amortize' originates from the late Middle English word 'amortiser', which means 'to kill' or 'to put an end to'. This is derived from the Latin word 'amortire', which means to kill or to extinguish. The concept of amortization has evolved over time, moving from a broad meaning of extinguishing something (like a debt) to a more specific financial application. Amortization began to gain prominence in the realm of finance in the 17th century, where it was used to describe the gradual repayment of debts or the periodic decrease in the value of assets. By the 19th century, the term was widely adopted in accounting and banking practices, reflecting the growing complexity of financial transactions. Today, amortization is an essential concept in personal and corporate finance, impacting how loans, mortgages, and investments are managed.