Assume your current mortgage payment is $900 per month. If you begin to pay $1,000 per month (with the extra $100 per month going to principal), which of the following will be TRUE?
A) The mortgage balance will decrease faster with $1,000 monthly payment compared to $900 monthly payments.
B) The total amount paid (principal and interest) will increase with $1,000 monthly payment compared to $900 monthly payments.
C) The total interest expense will increase with $1,000 monthly payment compared to $900 monthly payments.
D) The total principal paid will decrease with $1,000 monthly payment compared to $900 monthly payments.

Question

Quizplus · Accepted Answer

By paying an extra $100 towards principal each month, the mortgage balance will decrease faster, leading to less interest charged over time. Since the interest is calculated based on the remaining balance, the lower the balance, the less interest will be charged. Therefore, option A is true. Option B is false as the total amount paid will increase due to the extra $100 towards principal, which will result in a faster payoff. Option C is false for the same reason as option B. Option D is false as paying more towards principal will decrease the overall amount of principal paid over the life of the loan.

Assume Your Current Mortgage Payment Is $900 Per Month