The following table shows a portion of a five-year amortization schedule.
| 5 Year Amortization Schedule
| Loan Amount or Principal | $10,900.00 |
| Interest Rate on Loan | 10.95% |
| Extra Payment to Principal | $0.00 |
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 15 | $236.72 | $155.87 | $80.85 | $8,704.27 |
| 16 | $236.72 | $157.29 | $79.43 | $8,546.98 |
| 17 | $236.72 | $158.73 | $77.99 | $8,388.25 |
| 18 | $236.72 | $160.18 | $76.54 | $8,228.07 |
| 19 | $236.72 | $161.64 | $75.08 | $8,066.43 |
| 20 | $236.72 | $163.11 | $73.61 | $7,903.32 |
What percent of the payments made were due to interest for the months shown?
A. 30.9%
B. 32.6%
C. 62.5%
D. 63.4%
Answer (1)
Calculate the total interest paid: 80.85 + 79.43 + 77.99 + 76.54 + 75.08 + 73.61 = 463.5 .
Calculate the total amount paid: 236.72 × 6 = 1420.32 .
Calculate the percentage of payments due to interest: 1420.32 463.5 × 100 .
The percentage of payments due to interest is approximately 32.6% .
Explanation
Understanding the Problem We are given an amortization schedule for months 15 to 20 of a loan. We need to find the percentage of the total payments made during these months that were due to interest.
Calculating Total Interest Paid First, we need to calculate the total interest paid during these months. From the table, the interest paid for each month is: Month 15: $80.85 Month 16: $79.43 Month 17: $77.99 Month 18: $76.54 Month 19: $75.08 Month 20: $73.61
To find the total interest paid, we sum these amounts: $80.85 + $79.43 + $77.99 + $76.54 + $75.08 + $73.61 = $463.50
Calculating Total Amount Paid Next, we need to calculate the total amount paid during these 6 months. The payment per month is $236.72. So, the total amount paid is: $236.72 \times 6 = $1420.32
Calculating the Percentage Now, we can find the percentage of the total payments that were due to interest. This is calculated as: $\frac{\text{Total Interest Paid}}{\text{Total Amount Paid}} \times 100 = \frac{$463.50}{ 1420.32} \times 100
1420.32 463.50 × 100 ≈ 32.63%
Final Answer Therefore, approximately 32.6% of the payments made were due to interest for the months shown.
Examples
Understanding amortization schedules and calculating the percentage of payments going towards interest is crucial in personal finance. For example, when buying a car or a house, it helps you see how much of your money is actually reducing the principal versus paying off the interest. This knowledge allows you to make informed decisions about extra payments or refinancing to save money over the life of the loan. By understanding these concepts, you can effectively manage your debts and plan your financial future.
