Amortization

Part of speech: noun

Pronunciation: /əˌmɔːtəˈzeɪʃən/

Definitions

1. The practice of decreasing a financial obligation or asset's worth through regular payments over time is crucial in economic management
2. A technique employed to allocate the cost of a loan or an asset systematically, reducing its value gradually through scheduled disbursements
3. The process of gradually paying off a debt or reducing an asset's value through regularly planned payments is essential for financial stability

Etymology: The financial sense of "amortization" sits on a surprisingly violent root. Its ancestor in Middle English, "amortisen," meant "to kill," and the Old French "amortir" from which it descends carried the same sense, built from the Latin prefix "ad-" and "mors," meaning death. The link to money came through a legal idea: land given to the Church, or held in what was called mortmain, was "killed" in the sense that it was taken out of circulation and could never again pass to a lay owner or be sold. Lawyers used the verb for that permanent withdrawal of property. The modern sense of gradually reducing a debt or asset by regular payments grew from this legal background, where the old idea of removing something from use gave way to the idea of steadily wearing it down. A loan paid off bit by bit is retired in the same way that the earlier property was taken out of circulation, though the destination has changed from the Church's hands to the lender's books.

Synonyms: repayment, liquidation, discharge