The payment made each period on an amortized loan is constant, and it consists of some...
The payment made each period on an amortized loan is constant, and it consists of some interest and some principal. At the beginning of the loan's life, we have a greater percentage of the monthly payment that will be a repayment of interest.
A)True
B)False
Homework Answers
A) True
The equal monthly repayment of loan consist both interest and principal and portion of interest in equal monthly repayment is more than principal in the beginning of the loan's life because interest depends upon the remaining balance of principal. As principal portion being paid, it gradually reduces the remaining balance of principal and thus interest portion also reduces with time.
Thus, we can conclude that, in initial period interest portion is higher and in later period the principal portion is higher in equal monthly repayment.
Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.
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