What does amortization require from borrowers?

What does amortization require from borrowers?

• A. Only interest payments throughout the loan term
• B. Monthly payments to cover only principal
• C. Periodic payments to ensure total repayment by loan end
• D. Payments made at irregular intervals

Answer: (C)

Amortization requires borrowers to make periodic payments that systematically repay both interest and principal over the life of the loan. This structured repayment method ensures that by the end of the loan term, the total amount borrowed, along with any accumulated interest, is fully paid off. In an amortized loan, these periodic payments are typically made on a monthly basis and are calculated to ensure that the loan balance is reduced to zero by the end date of the loan. This is a common practice in many types of loans, including mortgages, because it provides both the lender and borrower with a clear repayment schedule. This is why the provided answer accurately captures the essence of amortization, as it emphasizes the requirement for consistent payments that cover the total debt by the conclusion of the loan.

Amortization requires borrowers to make periodic payments that systematically repay both interest and principal over the life of the loan. This structured repayment method ensures that by the end of the loan term, the total amount borrowed, along with any accumulated interest, is fully paid off.

In an amortized loan, these periodic payments are typically made on a monthly basis and are calculated to ensure that the loan balance is reduced to zero by the end date of the loan. This is a common practice in many types of loans, including mortgages, because it provides both the lender and borrower with a clear repayment schedule.

This is why the provided answer accurately captures the essence of amortization, as it emphasizes the requirement for consistent payments that cover the total debt by the conclusion of the loan.