Loans Loan Repayment 2

Question 1

What is an amortization schedule?

Accepted Answer

A table showing each payment's split between principal and interest over the loan term

Answer

An amortization schedule breaks down each periodic payment into its principal and interest components across the loan's life.

Question 2

In the early months of a 30-year fixed mortgage, most of your monthly payment goes toward:

Accepted Answer

Interest charges

Answer

Front-loaded amortization means early payments are mostly interest; the principal share grows gradually over time.

Question 3

What happens to your loan balance if you make only the minimum payment on a negatively amortizing loan?

Accepted Answer

It increases because unpaid interest is added

Answer

Negative amortization occurs when minimum payments don't cover accrued interest, causing the outstanding balance to grow.

Question 4

Which repayment strategy saves the most total interest on a fixed-rate loan?

Accepted Answer

Paying biweekly instead of monthly

Answer

Biweekly payments result in one extra full payment per year, reducing principal faster and saving significant interest.

Question 5

A borrower has a $500/month required payment but pays $700/month. How should the extra $200 be applied?

Accepted Answer

It should be applied to principal reduction

Answer

Extra payments above the minimum should be directed to principal, which reduces the balance faster and cuts total interest paid.

Loans Practice Test