Question

explain, in general terms, how the portions of loan payments going to principal and interest change...

explain, in general terms, how the portions of loan payments going to principal and interest change over the life of the loan

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Answer #1

Answer

The portions of installment loan payments going toward principal and toward interest vary as the loan is paid down. Early on – more towards interest than principal. And then gradually more towards principal.

Amortization is the monthly recalculation of principal and interest that takes place as you gradually pay down the principal of your mortgage. The portions of the payment that go to principal and interest change with every payment because interest is charged only on the portion of the principal that remains unpaid. The calculations are fairly straightforward and can be done on paper, or with a simple calculator.

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