If a Mortgage requires fixed payments every month for 15 yrs, which of the following is true?Group of answer choicesThe amount of interest paid each month increases over timeEarly payments contained the most interest, while later payments contain more principalThe same amount of principal is repaid with every paymentThe percentage of the payment going to interest goes up over time
Question
If a Mortgage requires fixed payments every month for 15 yrs, which of the following is true?Group of answer choicesThe amount of interest paid each month increases over timeEarly payments contained the most interest, while later payments contain more principalThe same amount of principal is repaid with every paymentThe percentage of the payment going to interest goes up over time
Solution
The correct answer is: "Early payments contain the most interest, while later payments contain more principal."
Here's why:
A mortgage is a type of loan used to purchase or refinance a home. It's paid back over time, and each payment is split into two parts: principal and interest.
- The principal is the amount of money you borrowed.
- The interest is what the lender charges for lending you the money.
At the beginning of the loan term, the interest portion of each payment is high because the outstanding loan balance is still high. As time goes on and you pay down the principal, the interest portion of each payment decreases.
So, in the early years of a mortgage, your payments are primarily going towards interest. As the mortgage matures, more and more of each payment goes towards paying down the principal.
Therefore, the statement "Early payments contain the most interest, while later payments contain more principal" is true.
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