ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -An amortized loan payment first pays off the interest expense for the period; any remaining amount is put towards reducing the principal amount. As the interest portion of the payments for an amortization loan decreases, the principal portion increases.

Detailed explanation-2: -In a partially amortized loan, only a part of the sum must be returned in monthly payments. An additional lump sum, called a balloon payment, is paid to the bank at the end date of the loan.

Detailed explanation-3: -How to Calculate Amortization of Loans. You’ll need to divide your annual interest rate by 12. For example, if your annual interest rate is 3%, then your monthly interest rate will be 0.25% (0.03 annual interest rate ÷ 12 months). You’ll also multiply the number of years in your loan term by 12.

Detailed explanation-4: -Amortization describes a subtle change in your loan payments over time. The cost of your monthly payments stays consistent. However, the monthly cost of interest gradually decreases from month to month. This happens because interest rates are calculated based on your loan balance, not your monthly payment.