Mortgage Quiz

1. Mortgage payments are made up of interest and principal repayment. Which of the following is true?
a. The mix of interest and principal repayment remains the same over the life of the mortgage.
b. In the early years of a mortgage, most of the payment is interest.
c. You pay all the interest first, then pay off the principal.
d. In the early years of a mortgage, most of the payment is principal.

2. Which $100,000 mortgage will have the highest monthly payments?
a. A 30-year fixed mortgage
b. A 20-year fixed mortgage
c. A 15-year fixed mortgage

3. With a $150,000 15-year mortgage with an interest rate of 6%, you will pay less than one half as much interest over the life of the loan than what you would pay with a 30-year mortgage with the same 6% rate.
a. True
b. False





Answers:
1. b) The great majority of mortgage payments in the early years is comprised of interest. It is in the later years when more and more of your payments are used to pay down the mortgage.

2. c) Each mortgage payment is part interest and part principal. If you are paying off the mortgage faster, each payment will have a larger amount of principal included. For example, a $100,000 30-year mortgage with an interest rate of 7% will have monthly payments of $665.30, while a 20-year mortgage would have payments of $775.30 and a 15 year mortgage would have payments of $898.83. However, with a 15-year mortgage, you would pay about $78,000 less total interest over the life of the mortgage. When investigating mortgages, be sure to consider the different interest rates on different term mortgages. Usually, mortgages with shorter terms have lower rates.

3. a) True. While the monthly payments will be higher with a 15-year mortgage, the total interest paid over the life of the loan will be substantially less.

Financial articles provided by WestStar Bank are for information purposes only and are not to be construed as tax or investment advice. Please consult with a tax and/or investment professional if you have any questions or doubts about any of the information contained in the articles.

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