In a fully amortizing fixed-rate mortgage, what happens to the principal and interest portions of the monthly payment over the life of the loan?
Correct Answer
B) The principal portion increases while the interest portion decreases
In a fully amortizing fixed-rate mortgage, the total monthly payment remains constant, but the allocation changes over time. Early payments consist mostly of interest, but as the principal balance decreases, less interest is owed, so more of each payment goes toward principal reduction. This is the fundamental characteristic of loan amortization.
Why This Is the Correct Answer
In a fully amortizing fixed-rate mortgage, the total monthly payment remains constant, but the allocation changes over time. Early payments consist mostly of interest, but as the principal balance decreases, less interest is owed, so more of each payment goes toward principal reduction. This is the fundamental characteristic of loan amortization.
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?
A borrower refinances their home with a cash-out refinance loan of $750,000. The original loan balance was $400,000, and they're taking $300,000 in cash. If conforming limits allow $766,550, how is this loan classified?
Under TRID regulations, discount points must be disclosed on the Loan Estimate in which section?
During the draw period of a HELOC, what type of payments are borrowers typically required to make?
A borrower has a credit card with a $10,000 balance and $200 minimum monthly payment. They plan to pay off $8,000 of the balance before closing, leaving a $2,000 balance with a $40 minimum payment. How should this be calculated for DTI purposes?
An ARM uses the 1-year Treasury index, which is currently at 2.1%. The margin is 2.75%, but the loan has a floor rate of 5.5%. What rate will the borrower pay?
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
Related Study Resources
Previous Question
A borrower purchased a home using seller financing with no institutional lender involved. Two years later, they want to obtain a traditional mortgage to pay off the seller and get cash for improvements. The seller financing balance is $200,000, and they want a new loan for $250,000. How is this transaction classified?
Next Question
Under what circumstances can a lender freeze or reduce a HELOC credit line?