Amortization

Definition - What does Amortization mean?

Amortization is an accounting method that reduces the value of an asset over its project useful life. Also the way that loan principal is systematically paid off over the life of a loan

Testopedia explains Amortization

When an investor buys a municipal bond at a premium, for tax purposes she must amortize the premium over the years remaining until the bond matures; so that when the bond reaches maturity it is worth par value. For example, if the bond is purchased for $1100 with 10 years left until it matures, the $100 premium is divided by 10 years and the bond is amortized down by $10 each year.

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