Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is correct?
A)The monthly payments will decline over time.
B)A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.
C)The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.
D)Exactly 10% of the first monthly payment represents interest.

Question

Quizplus · Accepted Answer

In a monthly payment mortgage, the amount of interest paid in the monthly payment is highest initially and gradually decreases over time, while the amount of principal paid gradually increases. Therefore, a smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment. The monthly payments themselves will not decline over time. The amount representing interest in the first payment would be higher if the nominal interest rate were 10% rather than 7%. Finally, exactly 10% of the first monthly payment does not represent interest, as a portion of the payment goes towards principal and part towards interest.

Which of the Following Statements Regarding a 30-Year Monthly Payment