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AMORTIZED LOAN

AMORTIZED LOAN. A LOAN THAT IS REPAID IN A SERIES OF PAYMENTS THAT COVER INTEREST AND PRINCIPAL. IN OTHER WORDS, EACH PAYMENT INCLUDES BOTH PRINCIPAL AND INTEREST. MAY BE LEVEL PAYMENTS OR DECREASING PAYMENTS. FULLY AMORTIZED LOAN.

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AMORTIZED LOAN

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  1. AMORTIZED LOAN • A LOAN THAT IS REPAID IN A SERIES OF PAYMENTS THAT COVER INTEREST AND PRINCIPAL. • IN OTHER WORDS, EACH PAYMENT INCLUDES BOTH PRINCIPAL AND INTEREST. • MAY BE LEVEL PAYMENTS OR DECREASING PAYMENTS

  2. FULLY AMORTIZED LOAN • ONE WHERE THE PERIODIC LOAN PAYMENTS ARE SUFFICIENT TO PAY OFF THE ENTIRE PRINCIPAL AMOUNT OF THE LOAN OVER THE TERM OF THE LOAN

  3. PARTIALLY AMORTIZED LOAN • THE PERIODIC LOAN PAYMENTS MAKE SOME REDUCTION IN THE PRINCIPAL BALANCE BUT DO NOT FULLY PAY OFF THE ENTIRE PRINCIPAL OVER THE TERM OF THE LOAN

  4. BALLOON PAYMENT • A LUMP SUM PAYMENT OF PRINCIPAL DUE AT THE END OF THE TERM OF THE LOAN. • REPRESENTS THE REMAINING UNPAID PRINCIPAL BALANCE.

  5. AMORTIZATION SCHEDULE • A TABLE THAT DETAILS THE PAYMENTS, PRINCIPAL PAID, INTEREST PAID, AND REMAINING PRINCIPAL BALANCE FOR A PROMISSORY NOTE.

  6. AMORTIZATION SCHEDULELEVEL PAYMENT

  7. AMORTIZATION PROBLEM • YOU HAVE PURCHASED A FARM AND FINANCED $50,000 FOR 5 YEARS AT 8%. • YOU HAVE TWO OPTIONS: • LEVEL PAYMENTS • DECREASING PAYMENTS

  8. AMORTIZATION SCHEDULELEVEL PAYMENT

  9. AMORTIZATION SCHEDULEDECREASING PAYMENT

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