Skip to content

FRM Part I · FRM Exam Part I · Mortgages and Mortgage-Backed Securities

A 30-year fixed-rate mortgage of $100,000 has a 12% annual rate, compounded monthly at 1% per month, with a level monthly payment of $1,028.61. What is the principal portion of the first payment, and the loan balance after the first payment?

The principal portion is $28.61 and the balance falls to $99,971.39. First-month interest is 1% of $100,000, or $1,000. Subtracting that from the $1,028.61 payment leaves $28.61 to reduce principal, so the new balance is $100,000 minus $28.61.

  1. A$28.61 principal; balance $99,971.39Correct
  2. B$1,000.00 principal; balance $99,000.00
  3. C$28.61 principal; balance $100,028.61
  4. D$128.61 principal; balance $99,871.39

Explanation

First-month interest = 100,000 x 0.01 = $1,000. Principal = 1,028.61 - 1,000 = $28.61. Balance = 100,000 - 28.61 = $99,971.39. Option B mistakes the interest for principal; option C adds principal instead of subtracting.

Did you get it right without looking?

One question tells you little. A timed set on Mortgages and Mortgage-Backed Securities shows your real accuracy, how long you take and where you lose marks.

Practise Mortgages and Mortgage-Backed SecuritiesFree diagnostic mock

More Mortgages and Mortgage-Backed Securities questions