In business, amortization refers to the spreading out of payments over multiple periods or installments.

In real estate, the term is applied to the method of repayment for a certain type of loan as determined by an amortization schedule.

As opposed to an interest-only loan in which each repayment installment consists only of interest payments with a single lump-sum principal repayment at the end of the loan period, each repayment installment of an amortizing loan consists of both principal and interest.

Over the course of the loan period, the entire principal will be paid back through periodic repayment installments. Common amortization periods for commercial real estate loans are 20, 25, or 30 years.

Ex. A standard commercial loan may be $1,000,000 with an interest rate of 5.5% and an amortization period of 25 years.

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