as you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?
Answer:
In an amortized loan, such as a mortgage, as you progress through the repayment schedule, the ratio of interest to principal in each monthly payment changes. Initially, a larger portion of your monthly payment goes toward paying off the interest on the loan, and a smaller portion goes towards the principal amount. However, as you continue to make payments, the interest portion gradually decreases, and the principal part increases. This shift is due to the way amortization schedules are structured, where the interest is calculated based on the outstanding balance of the loan. Over time, as you pay down the principal amount, the interest is calculated on a lower balance, resulting in a reduced interest portion in each monthly payment. Eventually, towards the end of the loan term, a larger portion of your payment goes towards paying off the principal, speeding up the process of debt reduction.