Loan Amortization Concepts

The video tutorial explains the concept of loan amortization, focusing on how principle and interest are applied over time. It uses a $100,000 loan at 6% interest over 30 years as an example, detailing how each monthly payment is divided between interest and principle. The tutorial illustrates how the interest portion decreases while the principle portion increases with each payment, ultimately leading to the loan being paid off. The video concludes with a summary of the amortization process.

What is the primary purpose of loan amortization?

• To increase the loan amount over time

• To ensure the loan is paid off at a steady rate

• To reduce the interest rate annually

• To extend the loan term indefinitely

How do amortization tables help in loan repayment?

• They predict future interest rates

• They offer investment advice

• They calculate the exact payment needed to cover interest and principal

• They provide a list of potential lenders

What is the monthly payment for a $100,000 loan at 6% interest over 30 years?

• $500.00

• $700.00

• $599.55

• $650.00

In the first payment, how much of the $599.55 goes towards interest?

• $599.55

• $99.55

• $500.00

• $100.00

What is the interest rate per month for a 6% annual interest rate?

• 6%

• 0.5%

• 0.6%

• 1%

What is the new loan balance after the first payment?

• $99,800.40

• $99,900.45

• $100,000.00

• $99,700.35

How much interest is paid in the second payment?

• $99.55

• $499.50

• $500.00

• $100.05

What is the principal payment in the third payment?

• $99.55

• $100.54

• $500.00

• $499.00

How does the interest portion of the payment change over time?

• It doubles

• It decreases

• It remains constant

• It increases

What is the principal balance after the second payment?

• $99,800.40

• $99,700.35

• $100,000.00

• $99,900.45