Why does the amount of interest go down every month according to this amortization table? Month Payment Principal Interest (9%) Principal Balance 1 $874.50 $799.50 $75.00 $9,200.50 2 $874.50 $805.50 $69.00 $8,395.00 3 $874.50 $815.50 $63.00 $7,583.50 (1 point) Responses

Question

Why does the amount of interest go down every month according to this amortization table? Month Payment Principal Interest (9%) Principal Balance 1 $874.50 $799.50 $75.00 $9,200.50 2 $874.50 $805.50 $69.00 $8,395.00 3 $874.50 $815.50 $63.00 $7,583.50 (1 point) Responses

A. If the principal payment goes up, so does the interest.
B. Lenders are required to reduce the interest rate as the loan is paid off.
C. The payments increase as the loan is paid off, so there is less interest.
D. The principal decreases with every payment, so there is less interest to pay.

Answer 1

D. The principal decreases with every payment, so there is less interest to pay. As the principal balance goes down, the amount of interest charged on that balance also decreases. This results in a larger portion of each payment going towards the principal and a smaller portion going towards interest.