In this lecture on great depression Mr Woods suggests that long-term loans are disproportionately sensitive to manipulations of the interest rate. Since I never took such a loan, I don’t really understand why is this so, strictly mathematically speaking… for example, why the very first month payment all goes to paying the interest and very little to the principal.
My basic question is, for anyone who knows: what is the typical mathematical setup of a long-term loan, how much goes for paying interest as time progresses, and why. Thanks!
