When an installment note is structured as a "fully amortizing" loan with equal monthly payments (such as a traditional mortgage):
A)The portion of each payment allocated to interest expense is the same each month.
B)The sum of the monthly payments is equal to the amount of the installment note (mortgage).
C)The difference between the sum of all monthly payments and the principal amount of the note constitutes interest.
D)The portion of each payment allocated to repayment of principal decreases each month as the mortgage is paid off.

Question

Quizplus · Accepted Answer

The term "fully amortizing" means that the loan is structured in such a way that all payments combined will cover both the principal amount and the interest over the loan's term. Therefore, the difference between the sum of all payments and the principal amount represents the interest paid over the life of the loan.

When an Installment Note Is Structured as a "Fully Amortizing