A borrower in California has a $200,000 deed of trust loan at 6% annual interest. The first monthly payment is $1,200. How much of that payment is applied to principal?
Correct Answer
B) $200
Monthly interest is calculated as $200,000 × 6% ÷ 12 = $1,000. The portion of the $1,200 payment applied to principal is $1,200 − $1,000 = $200. In an amortizing loan, early payments are heavily weighted toward interest, so only a small portion reduces the principal balance.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
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.
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