Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?
A) exactly 10% of the first monthly payment represents interest.
B) the monthly payments will increase over time.
C) a larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment.
D) the total dollar amount of interest being paid off each month gets larger as the loan approaches maturity.
E) the amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

Question

Quizplus · Accepted Answer

c is correct. b is clearly wrong, as are d and e. It is not obvious whether a is correct or not, but we could set up an example to see:
 $\begin{array} { l ll } 
\text { Loan } & 100000 \text { Term } & 20 \
\text { Rate } & 10\% \text { Periods/Year } & 12 \
\text { Periodic rate } & 0.00833333 \text { Total periods } & 140
\end{array}$ 
 $\begin{array} { l ll} 
\text { Payment } & - \$ 965.02 \text { Interest Month } 1 & \$ 833.33 \
\text { Interest as } \% \text { of total payment: } & 86 \% , \text { which is much larger than } 10 \%
\end{array}$

Which of the Following Statements Regarding a 20-Year Monthly Payment