This Amortization Calculator can serve as a basic tool for most, if not all, amortization calculations.

What is Amortization?

Amortization can be broadly defined in two ways. Firstly, it refers to the structured repayment of a loan over a period of time. Secondly, in the realm of business accounting, it pertains to the practice of distributing the expense of a costly and durable asset across multiple time periods. These definitions will be elaborated upon in the following sections.

Paying Off a Loan Over Time

When a borrower secures a mortgage, car loan, or personal loan, it’s customary for them to make monthly payments to the lender. These scenarios represent some of the most prevalent applications of amortization. Within each payment, a portion is allocated to settle the accrued interest on the loan, while the remainder serves to diminish the principal balance. As the principal balance decreases, the interest amount, computed based on the remaining amount owed, gradually decreases as well. You can observe this process in action by examining the amortization table.

In contrast, credit cards typically do not follow an amortization structure. They fall under the category of revolving debt, allowing cardholders to carry an outstanding balance from one month to the next, with the flexibility to adjust the monthly repayment amount. Similarly, other types of loans that do not adhere to amortization principles include interest-only loans and balloon loans. Interest-only loans involve an initial period where only interest is paid, while balloon loans require a substantial principal payment upon loan maturity.

Amortization Schedule

An amortization schedule, sometimes referred to as an amortization table, is a tabular representation that outlines every scheduled payment for an amortizing loan. Additionally, the calculator’s results will include both yearly and monthly amortization schedules. In the case of an amortized loan, each installment encompasses two components: an interest payment and a principal reduction, and these amounts differ with each payment period. The amortization schedule serves as a valuable tool for delineating the precise allocation of each payment, tracking the cumulative interest and principal payments to date, as well as revealing the remaining principal balance after each payment interval.

While standard amortization schedules typically do not incorporate extra payments or account for fees, it’s worth noting that the EstateGather™ Amortization Calculator does offer the capability to calculate extra payments. Additionally, it’s important to recognize that amortization schedules are primarily tailored for fixed-rate loans and may not be suitable for adjustable-rate mortgages, variable rate loans, or lines of credit.

Spreading Costs

In some cases, businesses make substantial investments in long-lasting assets classified as investments. Frequently amortized items to manage costs encompass machinery, buildings, and equipment. From an accounting standpoint, the immediate acquisition of a high-value factory within a single quarterly period can distort the financial records. Hence, its value is spread out over the anticipated lifespan of the factory. Although it can be technically regarded as amortization, this process is typically termed “depreciation expense,” where the asset’s value is amortized over its projected lifetime.

In accounting, the concept of amortization for cost spreading primarily pertains to intangible assets such as patents or copyrights. In accordance with Section 197 of U.S. law, the value of these assets can be deducted incrementally, either on a monthly or yearly basis. Similar to other amortization processes, you can anticipate payment schedules using a computed amortization schedule. The following is a list of intangible assets commonly subject to amortization:

1. Goodwill, representing the quantifiable value of a business’s reputation.
2. Going-concern value, denoting the worth of a business as a continuous entity.
3. The existing workforce, comprising current employees with their skills, education, and training.
4. Business records, operational systems, and any other informational assets, including lists or data pertaining to current or potential customers.
5. Intellectual property like patents, copyrights, formulas, processes, designs, patterns, know-how, formats, and related assets.
6. Customer-related intangibles, encompassing customer bases and customer relationships.
7. Supplier-related intangibles, involving the potential value of future purchases stemming from established vendor relationships.
8. Licenses, permits, or other rights conferred by governmental entities, including issuances and renewals.
9. Covenants not to compete or non-compete agreements executed in connection with acquisitions of interests in businesses.
10. Franchises, trademarks, and trade names.
11. Contracts for the utilization or term interests in any items enumerated in this list.

* Certain intangible assets, with goodwill as the most prevalent illustration, which possess indefinite useful lifespans or are “self-generated,” might not be eligible for legal amortization when it comes to tax purposes.

As per IRS guidelines outlined in Section 197, some assets do not fall under the category of intangibles. These excluded assets encompass interests in businesses, contracts, real estate, the majority of computer software, intangible assets not obtained in conjunction with the acquisition of a business or trade, stakes in existing leases or subleases of tangible properties, existing debts, rights to service residential mortgages (unless acquired in the course of acquiring a business or trade), and certain transaction costs incurred by parties in situations where any portion of a gain or loss is not acknowledged for tax purposes.

Amortizing Startup Costs

In the United States, startup expenses for a business, which encompass costs incurred for evaluating the feasibility of establishing or acquiring an operational business and costs related to its establishment, are eligible for amortization only under specific circumstances. These expenses should mirror deductions as business expenses when incurred by an already operational business and must be expended before the new business commences its operations. Some instances of such costs encompass consulting fees, financial evaluations of potential acquisitions, advertising outlays, and employee payments, all of which need to be expended prior to the official activation of the business. As per IRS regulations, these initial startup expenses must und