When you have a fixed rate mortgage (e.g., 4% mortgage for 30 years), your payments are the same over time. Which of the following is also true:

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Question restatement: A fixed rate mortgage (for example, 4% over 30 years) has level payments over time. Which of the following is also true?

Option to analyze (provided in the data): The proportion of your payment devoted to interest payments decreases over time.

Now, step-by-step analysis of the option:
- Why this statement is true in general: With a fixed-rate, fully amortizing mortgage, each monthly payment is constant, but the interest portion is calculated on the remaining loan balance. Early in the loan term, the outstanding balance is large, so a larger share of the payment goes toward interest. As you make payments, the balance declines, so the interest portion shrinks and a larger share of each payment goes toward reducing the principal.
- The mechanism at work: Amortization schedules allocate payments first to interest based on the current balance, then to principal. Since principal is reduced over time, interest charges (which are a function of the current balance) decrease over time. Consequently, the proportion of the payment that goes to interest falls, while the proportion applied to principal rises.
- What this implies for the cash flow: Even though the total monthly payment stays the same, the allocation between interest and principal changes, leading to a declining interest burden and accelerating equity buildup in the loan.
- Potential misconceptions addressed:
  - It is not true that the interest portion stays constant or increases over time with a fixed-rate loan; that would only occur if the balance did not change or if the rate changed.
  - The statement does not imply anything about taxes, escrow, or other costs, which are separate from the interest vs. principal split.
  - If the mortgage were adjustable-rate rather than fixed, the behavior of interest vs. principal portions could look different over time.

In summary, for a fixed-rate mortgage with level payments, the balance shrinks over time, so the interest portion of each payment decreases while the principal portion increases. This makes the statement about the decreasing proportion of interest in the payment correct in the context of standard amortizing fixed-rate loans.

MGT 012Y 001 SQ 2025 Week 4 HW - Homes

When you have a fixed rate mortgage (e.g., 4% mortgage for 30 years), your payments are the same over time. Which of the following is also true:

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