Which loan type involves the borrower paying both principal and a specified interest amount on a regular schedule?

The choice of a loan type where the borrower pays both principal and a specified amount of interest on a regular schedule is correctly identified as the Principal Plus Specified Interest Loan. This type of loan structure ensures that each payment made contributes both to reducing the principal balance of the loan and covering the interest cost associated with it.

In a typical scenario, loans structured this way provide clarity to borrowers since they understand upfront the specific amounts they will pay over the term of the loan. Each payment reduces the actual balance of the loan due to the principal component while the interest is calculated based on the outstanding loan balance.

Other types of loans mentioned do not fit this specific description. An annuity loan often involves payments calculated to pay off the entire loan based on a fixed payment amount which may not be separated out as clearly into principal and interest. A balloon loan typically has smaller payments initially, which do not fully amortize the loan and ends with a larger "balloon" payment. An equity loan, on the other hand, is based on the equity of a property, and often does not adhere to a strict schedule of both principal and specific interest payments in the same manner as described.