Amortization

The repayment of the principal amount of a loan ahead of its final maturity date. Loans that amortize usually require the borrower to make repayments on stated payment dates. Payment amounts are often specified in a schedule in the loan agreement and are frequently the same on each payment date. The required amount of each amortization payment is usually determined by dividing the total amount of the loan amortization by the number of payment dates that will occur during the term of the loan.