A borrower has a $400,000 mortgage at 6% annual interest. If they want to calculate how much principal will be paid down in the 60th payment, which information is most critical to determine this amount accurately?
Correct Answer
B) The remaining principal balance after 59 payments
To calculate the principal portion of any specific payment, you need the remaining principal balance just before that payment. The interest portion equals the remaining balance times the monthly interest rate, and the principal portion is the total payment minus the interest portion. This demonstrates the sequential nature of amortization calculations.
Why This Is the Correct Answer
To calculate the principal portion of any specific payment, you need the remaining principal balance just before that payment. The interest portion equals the remaining balance times the monthly interest rate, and the principal portion is the total payment minus the interest portion. This demonstrates the sequential nature of amortization calculations.
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?
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In an amortization schedule for a fixed-rate mortgage, the payment number where principal and interest portions are approximately equal is called the: