Understanding Amortization

Using the amortization schedule, How much is Janet going to pay every month?

• $ 180.76

• $280.76

• $150.76

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On Jan 1, 2020, how much of Janet’s payment goes toward interest?

• $73.41

• $75.00

• $71.80

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On Jan 1, 2020, how much of Janet’s payment goes toward principal?

• $180.76

• $75.00

• $105.76

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Look at 2/1/2020, compare the interest and principal from the previous month?

• principal is smaller and interest is larger

• interest is smaller and principal is larger

• principal and interest are the same

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Using the 1st amortization table, how much interest did she pay in total?

• $1,507.43

• $1,504.75

• $941.17

Using the 1st amortization table, how much is the total cost of the trip?

• $5,000.00

• $4,441.17

• $ 6,507.53

Use the 1st amortization table.

Let’s suppose Janet received a year-end bonus and can afford to pay $280.76 during January 2022.

Rewrite the line of the amortization schedule for 1/1/2021 using her new payment.

Date Payment Principal Interest Total Interest Balance

1/1/2021 280.76

• Date Pymnt Prin % Total % Bal

  01/01/2020 $280.76 $251.19 $29.57 $1,339.52 $1,720.48

• Date Pay Principal Interest Total Interest Balance

  01/01/20 $280.76 $148.95 $31.81 $1,309.95 $1,971.66

• Date Payment Principal Interest Total Interest Balance 01/01/20 $280.76 $154.95 $25.81 $1,365.95 $1,565.66

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Use 1st Amortization table.

Let’s suppose Janet received a year-end bonus and can afford to pay $280.76 during January 2022.

What will be the general impact on Janet’s amortization schedule by making this single larger payment?

• She will pay bigger total interest and, therefore, more total for her trip overall.

• She will pay (slightly) less total interest and, therefore, less total for her trip overall.

• She will pay the same total interest and, therefore, the same for her trip overall.

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Given:

principal : $5,000.00

interest rate : 18%

payable in : 3 years

Follow the following directions:

1. Using the Bankrate.com loan calculator, enter in the original loan amount, loan term, and interest rate.

2. Then, click on “Calculate” to get the monthly loan payment of $180.76.

3. Click “Show Amortization Schedule” and scroll down to the table. Make sure that the “Start Date” of the payment in the table is 12/01/2019.

4. Add an extra one-time payment of $100 in January 2022 by clicking “Add Extra Payment”.

5. Click “Apply Extra Payments”. If you scroll down to January 2022 in the table, you should see that there is now a one-time payment of $280.76 for that month.

Question:

What was the impact on the total interest Janet will pay by the end of her loan? (Compare the 1st amortization table with the new amortization table)

• Janet now pays $ 1,490.64, which is LESS than her original total interest payment.

• Janet now pays $916.83, which is $24.34 LESS than her original total interest payment.

• Janet now pays $1,500, which is LESS than her original total interest payment.

This new calculation has Janet curious -- if she’d been making $280.76 payments for the entire duration of the loan.

a. what would be the impact on the total interest Janet would have paid?

• Janet now pays $ 860.90, which is LESS than her original interest payment.

• Janet now pays $556.80, which is $384.37 LESS than her original interest payment.

• Janet now pays $2,500, which is MORE than her original interest payment.

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