By Amortization, it refers to the procedure or steps for writing off the initial asset costs, and also the mechanism of repaying or lowering debt with payments.
Amortization is a technique in lending and accounting which helps in reducing the book value for any mortgage or loan over a specific duration. Loan amortization means reducing or paying off the loan with periodic or regular payments throughout this tenure or duration. Whenever the concept applies to any asset, it becomes the same as depreciation. Hence, amortization can be called the procedure of writing down/off the value of any intangible asset or loan. Lenders make use of something called an amortization schedule for offering the repayment plan/schedule for loans. Negative amortization is possible whenever loan payments are lesser in comparison to the interest accumulated, meaning that the borrower owes a higher amount of money.
Loans or mortgages that are sanctioned for homebuyers or borrowers, are expected to be paid back within a specific tenure or duration via installments or regular payments. This includes a portion of the original loan amount (principal) as well. This procedure of repaying home loan debt with installments is called amortization for the real estate sector. The banks give the amortization schedule for home loans for repayment. This is a table showing the proportion of principal and interest that you repay each month throughout the entire tenure of the home loan. The period of amortization is the entire tenure that you require for repaying the entire mortgage/home loan.
