FRM Part I · FRM Exam Part I · Mortgages and Mortgage-Backed Securities
A borrower takes a 30-year fixed-rate, fully amortizing mortgage of $300,000 at 6% per year with monthly payments (monthly rate 0.5%). Using the standard level-payment formula, the monthly payment is approximately $1,798.65. What is the principal repaid in the first monthly payment?
The first payment of $1,798.65 includes interest of $1,500 (0.5% of $300,000), so principal repaid is $298.65. In a level-payment mortgage, early payments are mostly interest and the principal share grows over time.
- A$298.65Correct
- B$1,500.00
- C$1,798.65
- D$1,200.00
Explanation
First-month interest = 300,000 x 0.005 = $1,500. Principal repaid = 1,798.65 - 1,500 = $298.65. The $1,500 option confuses the interest portion with principal; $1,798.65 is the whole payment.
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