Answer to Question #281055 in Finance for Aarti

Question #281055

If you increase the interest rate on an amortized loan, does the payment increase or decrease? why increase or why decrease?


1
Expert's answer
2021-12-19T18:11:52-0500

The principal portion of the payment increases

Adjustable-rate mortgages are an example of fully amortized loans with a variable interest rate (ARMs). The loan is re-amortized and a new amortization schedule is established each time the interest rate changes. As a result, you'll still be able to pay off the loan, but your future payments will be higher. The principle part of an amortized loan payment rises as the interest portion lowers. As a result, interest and principal payments have an inverse relationship during the life of the amortized loan.


Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be the first!

Leave a comment

LATEST TUTORIALS
New on Blog
APPROVED BY CLIENTS