ShmoopTube

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Finance a la shmoop what is amortization alright come on now people

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sing it with me when you repay your loan overtime on your own that's amortization [man singing serving food and dogs jump up]

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doesn't everyone know that song i was raised as a kid with that at bedtime

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all right well sorry about that every now and then Beyonce being Crosby has to [Beyonce on stage]

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you know let out her inner self here so yeah amortization big word let's make it

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smaller we've got the root word Mort in there which means death and yeah [Mort highlighted in yellow]

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basically when you're amortizing alone you're killing your obligation to pay it [a knife pulled on the loan]

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and softly, killing softly with his song and yes another way you're gradually reducing

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your obligation by paying back the loan you know whatever you borrowed your

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amortizing all right so once a loan is fully amortized the amount you owe is [loan bill due amount]

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zero like you paid it all back all right well that's one definition of the term

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amortization also refers to a fancy way of allocating costs like you pay a

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thousand dollars for an amazing bed mattress well did you get value from it [man paying $1000 for a bed and hands cash to woman]

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well if you use it a lot you'll amortize the cost in such a way that the bed on a

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per night basis is cheap how so well if you sleep on it for 2,000 nights before [calculation for value of bed]

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you toss it some dumpster somewhere you paid 50 cents per night for your bed got

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it fifty cents times two thousand that's a grand and that's like a nickel of hour of

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use if you're know sleeping 10 hours a day or using it ten hours a day and [man sleeping in vibrating bed]

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that assumes it's just you in the bed all right well what about a prom dress

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or a tux well the finest Walmart prom dress runs [girl holding a prom dress for $300]

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about 300 dollars but you wear it once before Tyler Hendricks vomits on it and [Tyler vomits on girls prom dress]

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well and you're done so it cost 300 bucks for one night or

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about fifty bucks an hour for the six hours you wore it before tossing it yeah

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way expensive per use because you only had six hours of amortization the dress [calculation for the value of prom dress]

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well loans work the same way you borrow 120 grand to buy a home with a 30-year

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mortgage over those 30 years you amortize the loan or allocate the paying [woman receiving a 30-year loan for a mortgage]

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down of that 120 k you just borrowed over a long period of time so you know

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something keep in mind the next time you go shopping for a bed or a dress [a couple shopping for a bed]

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