Asked by Arber Gashi on May 09, 2024
Verified
Explain how increasing the amount of each monthly payment affects an amortized loan.
Amortized Loan
A loan with scheduled periodic payments that include both interest and principal repayment, ultimately paying off the loan by its maturity date.
Monthly Payment
This refers to the fixed amount of money paid by a borrower to a lender at regular monthly intervals, typically used in the context of loans or mortgages.
- Comprehend the principle and consequences associated with various loan categories such as amortized, balloon, interest-only, and variable loans.
- Examine how the frequency of payments affects both savings and loans.
Verified Answer
SS
supriya sharmaMay 14, 2024
Final Answer :
An amortized loan is a loan where the monthly payment includes both interest and principal. The interest is calculated based on the remaining principal balance. When the monthly loan payment is increased, the additional amount reduces the principal balance. This in turn reduces the amount of interest due for each remaining payment over the life of the loan. Thus, the extra principal payment saves future interest expenditures.
Learning Objectives
- Comprehend the principle and consequences associated with various loan categories such as amortized, balloon, interest-only, and variable loans.
- Examine how the frequency of payments affects both savings and loans.