amortization

Definition from Nolo’s Plain-English Law Dictionary

(1) A periodic payment plan to pay a debt (such as a mortgage or car loan) by a certain date, in which interest and a portion of the principal is included in each payment. Payments are usually calculated in equal monthly installments. Since the largest portion of the early payments is interest (based on the amount owed), the principal doesn't decline significantly until the latter stages of the loan term. (2) A tax method of recovering costs of certain assets by taking deductions evenly over time. This is similar to straight-line depreciation and unlike an accelerated depreciation method. For example, when someone buys a company, the Internal Revenue Code directs that business goodwill costs must be amortized over 15 years by the buyer.

Definition provided by Nolo’s Plain-English Law Dictionary.