What is amortization?

Amortization refers to the gradual reduction of a loan’s principal balance over the course of the loan term. In the context of an amortizing loan, such as a mortgage or a car loan, each periodic payment is designed to cover both the interest on the outstanding balance and a portion of the principal. As the borrower makes regular payments, the principal amount decreases, and the interest expense also reduces accordingly. This amortization process continues until the loan is fully paid off at the end of its term. By spreading the repayment of the principal over time, amortization allows borrowers to manage their debt obligations more effectively and provides lenders with a predictable and steady stream of repayments.

Merriam Webster Online


to pay off (an obligation, such as a mortgage) gradually usually by periodic payments of principal and interest or by payments to a sinking fund

to gradually reduce or write off the cost or value of (something, such as an asset)


The process by which loan principal decreases over the life of an amortizing loan

Amortization (accounting), the expensing of acquisition cost minus the residual value of intangible assets in a systematic manner, or the completion of such a process