Question

Which of the following statements is TRUE for any mortgage?

a. The monthly payments will decline over time.

b. When amortizing a mortgage, the 1st mortgage payment and 360th mortgage payment have the same interest amount with regards to amortizing the loan.

c. A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.

d. The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.

e. The amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 10%.

Answer 1

Answer (c):- A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.

Explanation:- It is because of the monthly payment which is the sum of the interest payment and the principal amount. The interest rate is charged on the amount which is due. Therefore, as time would pass, the principal amount would get lower which would also reduce the interest rate payment. Hence, in the passing time, the interest payment would be of a smaller extent and the principal amount would contain the higher amount.