A California borrower has a $250,000 deed of trust at 6% annual simple interest. The borrower makes a monthly interest-only payment. After one month, how much of the $250,000 principal has been reduced?
Correct Answer
C) $0 total
In an interest-only loan, the monthly payment covers only the interest due. No principal is reduced. Monthly interest = $250,000 × 6% ÷ 12 = $1,250. The entire payment goes to interest, so the principal remains at $250,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
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