Final answer:
A lender would receive more interest over the term of the loan with a Constant Payment Mortgage (CPM) compared to a Constant Amortisation Mortgage (CAM), given that in a CPM interest is computed on a higher principal balance for a longer period of time.
Step-by-step explanation:
The question asks which loan type, a Constant Amortisation Mortgage (CAM) or a Constant Payment Mortgage (CPM), would result in the lender receiving more interest over the term of the loan, assuming the principal amount, interest rate, and term are the same. With a CAM, the principal is paid down at a constant rate plus varying interest payments that decrease over time as the principal balance decreases. Conversely, with a CPM, also known as a fixed-rate mortgage, the borrower makes constant payments throughout the term, which includes both interest and principal, with the proportion of interest decreasing over time as the principal is paid down. Because the principal in a CAM loan is reduced more quickly at the beginning of the loan term, less interest accumulates over time compared to a CPM, where interest is computed on a higher principal balance for a longer period. Consequently, the lender would receive more interest over the term of the loan under a CPM arrangement than with a CAM.