Charges made against the interest received on a debt in order to offset a premium paid for the debt. Thus, with each periodic payment, a debtor is not only paying back interest, but also part of his or her premium. This leads to higher periodic payments than in the case when only interest is paid out. However, a payment schedule which includes premium amortization makes debt management easier, especially if the principal is large. While paying just the interest each period will lead to a low outflow of cash each month, the debtor might not save enough to pay the principal. Thus, amortizing the premium each period also reduces the credit risk of the debt, since the creditor gets some part of the principal each time period, as opposed to allowing a debtor to forfeit on all of it at the maturity of the loan. Amortization of premium is a common feature in cases when a person or company takes on a large amount of debt at one time, such as a mortgage.
Related information about amortization of premium:
- What is amortization of premium? - InvestorWords.com
Definition of amortization of premium: Charges made against the interest received on a debt in order to offset a premium paid for the debt. Thus, with each ...
- amortization of premium - Municipal Securities Rulemaking Board
AMORTIZATION OF PREMIUM – An accounting process by which the book value of a security purchased at a premium above par is decreased during the ...
- What is the amortization of premium on bonds payable ...
Let's use the following example to illustrate the amortization of premium on bonds payable: A corporation issues bonds having a face value of $1000000 and.
- What is the amortization of premium on bonds payable? - Questions ...
Dec 26, 2010 ... What is the amortization of premium on bonds payable? Date Sunday, December 26, 2010 at 5:46AM. When a company issues bonds, ...
- What is amortization of premium? - BusinessDictionary.com
Definition of amortization of premium: The lessening of the amount that is due on a loan with each payment that is made, as a portion of each payment goes ...
- § 1.818-3 Amortization of premium and accrual of discount. :: PART ...
The adjustment for amortization of premium decreases the gross investment income, the exclusion and reduction for wholly tax-exempt interest, the exclusion ...
- GAP 200.220, Amortization of Premium & Discount on Fixed ... - Duke
GAP 200.220, Amortization of Premium & Discount on Fixed Income Securities. Effective Date: March 1995. Review/Revision History: July 2003. Definition of ...
- What is AMORTIZATION OF PREMIUM? - The Law Dictionary
Definition of AMORTIZATION OF PREMIUM: Reducing the payment amount on a loan with each payment. A percent of each payment goes on prinicipal.