In the amortization schedule of a fixed-rate mortgage, the monthly principal portion increases over time because:
Correct Answer
C) Interest is calculated on the declining principal balance
In a fixed-rate mortgage with level payments, the monthly payment amount remains constant, but the allocation between principal and interest changes over time. As principal is paid down, the outstanding balance decreases. Since interest is calculated on the remaining principal balance each month, the interest portion decreases while the principal portion increases, maintaining the same total payment amount.
Why This Is the Correct Answer
In a fixed-rate mortgage with level payments, the monthly payment amount remains constant, but the allocation between principal and interest changes over time. As principal is paid down, the outstanding balance decreases. Since interest is calculated on the remaining principal balance each month, the interest portion decreases while the principal portion increases, maintaining the same total payment amount.
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