Finance
A Connecticut buyer takes out a 30-year mortgage. In the early years of amortization, which statement is TRUE about the allocation of monthly payments?
AMost of the payment goes toward principal reduction
BMost of the payment goes toward interest, with a small amount reducing the principal✓ Correct
CEqual amounts go toward principal and interest throughout the loan term
DIn the first year, 100% of the payment goes toward interest
Explanation
In an amortizing mortgage, early payments consist mostly of interest because the outstanding principal balance is at its highest. Over time, as the principal decreases, each payment allocates more toward principal and less toward interest.
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