Legal Definitions - ordinary annuity

An ordinary annuity is a financial arrangement characterized by a series of equal payments made at regular, fixed intervals, where each payment occurs at the end of a specified period. This timing—payments at the conclusion of each period—is the key feature that distinguishes an ordinary annuity from other types of annuities.

• Example 1: Mortgage Payments

  Imagine Sarah purchases a home and takes out a mortgage. She agrees to make a fixed payment of $1,500 every month for 30 years. Each $1,500 payment is due on the last day of the month, covering the interest and a portion of the principal for the month that just ended.

  How it illustrates the term: This is an ordinary annuity because Sarah makes equal payments ($1,500) at regular intervals (monthly), and each payment is made at the *end* of the period (the end of the month) for the housing services received during that month.

• Example 2: Retirement Income from a Pension

  After retiring, Mark begins receiving a fixed monthly pension payment of $2,000 from his former employer's pension fund. The fund disburses this amount to him on the 30th or 31st of each month, providing income for the month that has just concluded.

  How it illustrates the term: Mark's pension represents an ordinary annuity because he receives a consistent amount ($2,000) at predictable times (monthly), and these payments are issued at the *end* of each month, compensating him for the period that has just passed.

• Example 3: Car Loan Installments

  David buys a new car and finances it with a loan, agreeing to pay $400 per month for five years. His first payment is due one month after he drives the car off the lot, and subsequent payments are due on the same day each month thereafter, covering the principal and interest accrued during the preceding month.

  How it illustrates the term: This car loan structure is an ordinary annuity. David makes equal payments ($400) at regular monthly intervals, and each payment is made at the *end* of the period it covers, specifically after the interest for that month has accumulated.