Both are financial countdowns, but the word “amortisation” has two different meanings. The first refers to reimbursing a debt with periodic payments. The second refers to reducing or writing off the cost or value of an asset.

Repayment plan

Amortisation is a schedule to repay the principal and interest on a loan.

For example, when homebuyers get a mortgage, the bank will provide a table outlining how much capital is being reimbursed and how much interest is being paid with each monthly payment. This tells borrows how much debt they’ve already repaid and how much they still owe. In jurisdictions where mortgage interest is tax deductible, the amortisation schedule is vital for preparing personal income tax returns. 

Bond buyers will similarly get an amortisation schedule, which will spell out when interest payments will be made and when the principal will be returned.

Capital expenses

“Second, amortisation can also refer to the practice of spreading out capital expenses related to intangible assets over a specific duration--usually over the asset’s useful life--for accounting and tax purposes,” Investopedia explained.

For example, a firm could spread out the cost of investing in intellectual property, such as a patent or a brand name.

In an accounting sense, amortisation is similar to depreciation, which captures the cost of wear and tear on tangible assets like machinery and property.

As Investopedia put it: “Amortisation is important because it helps businesses and investors understand and forecast their costs over time.”