David is reviewing his mortgage statement for his property in Westchester County. The statement shows his monthly payment broken down into principal and interest components. As David continues making payments over time, what will happen to the interest portion of his monthly payments?
Correct Answer
B) The interest portion will gradually decrease as the principal balance is paid down
In a standard amortizing mortgage, the interest portion of each payment decreases over time because interest is calculated on the outstanding principal balance. As principal payments reduce the balance, less interest is owed each month, while the principal portion of the payment increases correspondingly.
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Related Topics & Key Terms
Key Terms:
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A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
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