Omar Diaz takes an interest-only loan for $200,000 at 6% for the first 12 months. If he makes each scheduled monthly payment exactly as required during that interest-only period, how much principal will he have paid off after 12 months?
Correct Answer
C) No principal would be paid off during the interest-only period
Under an interest-only structure, the scheduled payments cover the interest due but do not reduce the principal balance during the interest-only period. That means Omar still owes the original $200,000 principal after 12 months, so the principal reduction is $0.
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