Financial Terms / amortization

Understanding Amortization Accounting

Amortization is a process used when taking out a loan, involving the repayment of the loan amount over a set loan term.

Formula

P = R x ( (1 + R)N / ((1 + R)N - 1) )

How do I calculate the amortization?

If you're looking to calculate the amortization of your mortgage, you should use an amortization schedule calculator. This calculator will help you determine your monthly mortgage payments, which is important for budgeting and long-term financial planning. You can use an amortization calculator found in popular programs like Sourcetable. The formula to calculate the amortization term is: Amortization Term (in months) = Loan Amount √∑ Monthly Payment.

What is Amortization?

Amortization is the process of recording the value of a loan or intangible asset over time.

What is the purpose of Amortization?

The purpose of amortization is to pay off debt.

What is the total monthly payment specified when taking out a loan?

The total monthly payment is specified when taking out a loan.

What formula is used to calculate the monthly payment?

The formula to calculate the monthly payment is: Monthly Payment = Loan Amount x (Interest Rate / 12) / (1 - (1 + Interest Rate / 12)-Term).

Key Points

How do I calculate amortization?
P = R x ( (1 + R)N / ((1 + R)N - 1) )
Reduces Loan Costs
Amortization is an accounting technique used to reduce the cost of a loan by spreading out payments over time. This lowers the book value of the loan or intangible asset.
Similar to Depreciation
Amortization is similar to depreciation in that both are used to spread out costs over time. However, amortization applies specifically to loans, while depreciation is used to spread out the cost of physical assets.

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