A borrower has a $300,000 mortgage at 5% annual interest rate with a 30-year term. After making payments for 10 years, approximately how much of the original principal balance remains?
Correct Answer
B) $240,000
In the early years of a 30-year mortgage, payments consist primarily of interest with relatively small principal reductions. After 10 years of a 30-year mortgage, approximately 20% of the original principal has been paid down, leaving about 80% or $240,000. This illustrates the front-loaded interest structure of amortizing mortgages.
Why This Is the Correct Answer
In the early years of a 30-year mortgage, payments consist primarily of interest with relatively small principal reductions. After 10 years of a 30-year mortgage, approximately 20% of the original principal has been paid down, leaving about 80% or $240,000. This illustrates the front-loaded interest structure of amortizing mortgages.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
People Also Study
Federal Mortgage-Related Laws
23% of exam
Mortgage Loan Origination Activities
25% of exam
Ethics, Fraud & Consumer Protection
17% of exam
Uniform State Test Content
12% of exam
Previous Question
A borrower owns a home worth $400,000 with an existing mortgage balance of $200,000. They want to obtain a new loan for $250,000 to pay off the existing mortgage and receive $50,000 in cash. Six months later, they decide to get another loan for $300,000 to pay off the $250,000 loan and receive additional cash. How should the second transaction be classified?
Next Question
Under what condition can a lender freeze or reduce a HELOC credit line?