A mortgage for $100,000 is made with initial payments of $500 per month for the first year. The interest rate is 9 percent. After the first year, payments will increase to an amount that makes the loan fully amortizable over the remaining 24 years with constant monthly payments.a. Calculate the interest deductions for the loan for the first year.b. How much, if any, interest must be deferred until the second year?c. How much interest will be deducted in the second year?

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Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.