Question

Brendan's lender set him up with a loan in which the majority of Brendan's early payments go toward interest, his monthly payments remain the same, and he doesn't start paying much toward his principal until closer to the end of the loan. This is ______.

Answer 1

Answer:

This is known as typical amortisation

Explanation:

Amortization is defined as the process of spreading out a loan into a series of fixed payments over time. Brendan will be paying off the loan's interest and principal in different amounts each month.  The payment is made up of parts that change over time. A portion of each payment goes towards:

The interest costs (what Brendan's lender gets paid for the loan).

Reducing Brendan's loan balance which also means paying off the loan principal. Especially with long-term loans, the majority of each periodic payment is an interest expense, and Brendan only pays off a small portion of the balance. In other words, he doesn't make much progress on the debt's principal repayment until closer to the end of the loan.