On January 1,2011,Alpha Enterprise signed a $100,000,6%,20-year mortgage note to buy a new warehouse.The mortgage will be repaid in a series of twenty equal annual installment payments.Over the 20-year period,as each installment payment is made,the portion of the payment that is used to reduce the principal will ________.
A)increase
B)decrease
C)stay the same
D)The answer cannot be determined from the information given.

Question

Quizplus · Accepted Answer

With a fixed-rate mortgage, as each installment is made, the interest portion decreases because it's calculated on the remaining principal, which decreases with each payment. Consequently, the portion of the payment that reduces the principal increases over time.

On January 1,2011,Alpha Enterprise Signed a $100,000,6%,20-Year Mortgage Note to Buy