What is an amortized loan? Kiritsis Law Group 212 922 0005

May 13, 2021

By: John Kiritsis, Esq., CPA, MBA, MS, JD, LL.M

Generally, it is a mortgage loan that is repaid by a series of equal or nearly equal regular payments, with each payment composed of interest and principal. Also, an amortized loan will be without any special balloon payment prior to maturity. There is a key contrast between an amortized loan which has equal payments versus a bullet loan where a large portion of the loan is due at a set maturity date rather than being paid down gradually.

The word “amortization” has its roots from the French language, and it means “to kill off”. There is often a large confusion about amortized loans within the accounting and tax industry profession. The confusion seems to stem that accounting and tax rules often associate amortization with an intangible asset, which is similar to the depreciation concepts involving real estate though, this may be true in terms of accounting and tax regulatory framework, it’s important to note that state property law, and the attorneys who draft the loan agreements, don’t seem to notice and/or care about the distinction. Unlike the old days, calculating the amortized loan schedule and graphics is relatively easy, in the age of the internet.

 

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