With each payment in an amortization schedule, what goes down and what goes up?

• A. The amount of interest paid goes up and the amount of principal goes up
• B. The amount of interest paid goes up and the amount of principal goes down
• C. The amount of interest paid stays the same while the principal changes
• D. The amount of interest paid goes down and the amount of principal goes up

Answer: (D)

In an amortization schedule, each payment has two parts: interest on the current loan balance and a reduction of the principal. Because interest is charged on the remaining balance, the balance gets smaller as you pay, so the interest portion of each payment decreases over time. With a fixed total payment, the decreasing interest portion leaves more of the payment to apply to principal, so the principal portion increases. Early payments feel more like interest payment, while later payments pay more of the principal. That’s why the correct description is that the interest goes down while the principal goes up.