Question

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

a) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

b) Because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant.

c) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

d) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

e) The outstanding balance declines at a slower rate in the later years of the loan's life.

Answer 1