Which of the following statements regarding a 15-year (180-month) $125,000, fixe

Question

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

a. Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.
b. The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.
c. The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.
d. The outstanding balance declines at a faster rate in the later years of the loans life.
e. Because the outstanding balance declines over time, the monthly payments will also decline over time.

Explanation / Answer

Option-A is correct.

The monthly installments of a fixed rate mortgage remain constant over the life of the loan. The proportion of interest and principal payments included in the monthly installment keeps changing. Over time, the amount of interest included in the installment decreases and the amount of principal amount increases.

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