On January 1,2011,Zenith,Inc.,signed a $200,000,5%,20-year mortgage note to buy a new office building.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

The portion of each payment used to reduce the principal increases over time in a standard amortizing loan. Initially, payments are mostly interest, but as the principal decreases, the interest portion of each payment decreases, and the principal portion increases.