Which of the following statements regarding a 20-year (240-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)
A) the outstanding balance declines at a slower rate in the later years of the loan's life.
B) the remaining balance after three years will be $225,000 less one third of the interest paid during the first three years.
C) because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant.
D) interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.
E) 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.

Question

Quizplus · Accepted Answer

c is the correct answer. Thinking through the question, the other answers can all be eliminated. One could also set up an amortization schedule to prove that only statement c is correct.

Which of the Following Statements Regarding a 20-Year (240-Month) $225,000