Amortization

 

  Amortization

It is a distribution of a single lump-sum cash flow into many smaller cash flow installments for easier repayment. Unlike other repayment models, each repayment installment consists of both principal and interest. Amortization is chiefly used in loan repayments (a common example being a mortgage).  The payments are usually of equal amounts. In the case of a loan, a greater amount of the payment is applied to interest at the beginning, while during the latter portion, more money is applied to principal.
 

 

 

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