Question 16 of 50 8.0 Points You recently obtained a 30-year (360-month) $100,00
ID: 2798760 • Letter: Q
Question
Question 16 of 50 8.0 Points You recently obtained a 30-year (360-month) $100,000 fixed-rate mortgage. Which of the following statements is correct? (Ignore all taxes and transactions costs.) 0 A. The remaining balance after three years will be $100,000 less the total amount of interest paid during the first 36 months. O B. The proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now than it will be this year. O C. The monthly payment on the mortgage will steadily decline over time D. The monthly payment on the mortgage will per Reset Selection riodically increase or decrease as interest rates change.Explanation / Answer
Answer B
As with the time the interest amount will decrease as interest is charged on the remaining balance of principal amount so with the time when the principal amount will decrease the interest on this will also decrease and the proportion of Principal amount will increase in the future then it is now.
Lets take an example
Suppose we take a loan of 30,000 with 10% interest and installment is paid annually.
Year 1 Installment = 10,000(Principal) + 3000(Interest) = Principal amount is 76.92% of installments.
Year 2 Installment = 10,000(Principal) + 2000(Interest) = Principal Amount is 83.33% of installment
Year 3 Installment = 10,000(Principal) + 1000(Interest) = Principal amount is 90.9% of installments.
From the above example u can see that Principal amount proportion is increasing with every installments so Proportion of the monthly payment that goes towards repayment of principal will be higher 10 years from now that it will be this year.