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Amortization and Sinking Fund Essay

Amortization (or amortisation) is the process of decreasing, or accounting for, an amount over a period. When used in the context of a home purchase, amortization is the process by which loan principal decreases over the life of a loan. With each mortgage payment that is made, a portion of the payment is applied towards reducing the principal, and another portion of the payment is applied towards paying the interest on the loan. An amortization table shows this ratio of principal and interest and demonstrates how a loan’s principal amount decreases over time. Amortization (business), the allocation of a lump sum amount to different time periods, particularly for loans and other forms of finance, including related interest or other finance charges. Amortization schedule, a table detailing each periodic payment on a loan (typically a mortgage), as generated by an amortization calculator. Negative amortization, an amortization schedule where the loan amount actually increases through not paying the full interest

SINKING FUND

-A fund into which a company sets aside money over time, in order to retire its preferred stock, bonds or debentures. A fund into which a company sets aside money over time, in order to retire its preferred stock, bonds or debentures. In the case of bonds, incremental paymentsinto the sinking fund can soften the financial impact at maturity. Investors prefer bonds and debentures backed by sinking funds because there is less risk of a default.

-is a fund established by a government agency or business for the purpose of reducing debt by repaying or purchasing outstanding loans and securities held against the entity. It helps keep the borrower liquid so it can repay the bondholder.


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