📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    With amortized loans, such as a mortgage, which of the

    following statements is correct?
    A Interest is always more than half of the payment amount Correct Answer Incorrect Answer
    B Return of principal is always more than half of the payment amount Correct Answer Incorrect Answer
    C The proportion of interest to the total decreases later in the payment schedule Correct Answer Incorrect Answer
    D The proportion of interest to the total increases later in the payment schedule Correct Answer Incorrect Answer
    E Principal is always less than half of the payment amount Correct Answer Incorrect Answer

    Solution

    An amortized loan (or installment loan) requires borrowers to make regular periodic payments, each consisting of both interest and principal. • In the early stages of repayment, a larger portion of each installment goes towards interest, since the outstanding principal is still high. • As payments continue, the outstanding principal reduces, causing the interest component to decline. • At the same time, the principal repayment portion gradually increases, leading to faster debt reduction in later years. Therefore, in amortized loans like mortgages, the share of interest decreases over time, while the share of principal repayment increases.

    Practice Next
    More Accounts Questions

    Relevant for Exams:

    ask-question