Today’s $$ ‘Word’: Amortization

AmortizationThis has two meanings in finance where you talk about spreading a loss out over a fixed period. 1. When you pay off debt on a specific schedule, mostly for home or car loans. When you start paying it off, you’ll mostly be paying off the interest, then as the payments near the end, they will eat mostly into the principal until (ideally) you’re all done repaying.  2. When you talk about depreciating something intangible (copyrights, patents, intellectual property, franchise rights) for taxes evenly over the time it was meant to be valuable. Used in a sentence: “In order to pay off the enormous debt she incurred securing a patent for making milkshakes out of chicken (for which she realized there was zero market) Nicole will amortize her loss over the next few years.

By | 2017-01-23T08:55:12+00:00 August 11th, 2014|Word of the Week|0 Comments