Why does the amount of an amortized loan’s payments devoted to interest go down over time...

Why does the amount of an amortized loan’s payments devoted to interest go down over time while the amount that goes toward principal goes up over time?

Expert Solution

Solution

The intrest in case of an amortized loan is calculated on the basis of the recent ending balance of previous period.Thus when a payment is made, the amount in excess of intrest goes into reducing the principal.Thus for the next period the outstanding principle decreases and thus the intrest for the period also decreases.Thus with time the payments devoted to intrest decrease and to the principal increase.

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