What is a principal and interest mortgage?
Correct Answer
D) A loan where each repayment covers the interest charged and also reduces the amount borrowed.
A principal and interest mortgage requires regular repayments that include both a portion to reduce the loan principal (the amount borrowed) and a portion to cover interest charges. This ensures the loan is fully repaid by the end of the loan term.
Why This Is the Correct Answer
In a principal and interest loan every repayment pays the interest charged for the period and reduces the balance owed, so the loan is fully repaid by the end of the term.
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