### What is the principal in reference to a mortgage balance? - [x] The amount of the payoff - [ ] The interest accrued over the term of the loan - [ ] The total mortgage payment including taxes and insurance - [ ] The future value of the property > **Explanation:** The principal refers to the amount of the loan that still needs to be paid off, excluding interest, taxes, and insurance. It is reduced with each payment made. ### How can the principal balance of a mortgage be reduced more quickly? - [x] By making extra payments or larger than required payments - [ ] By consolidating the loan with other debts - [ ] By refinancing the mortgage - [ ] By delaying payments > **Explanation:** Paying more than the minimum required payment can reduce the principal balance more quickly. This can be done through extra monthly payments, occasional lump-sum payments, or bi-weekly payments, effectively decreasing the amount of interest due over the life of the loan. ### What is one benefit of paying off the principal quicker than the original term? - [x] Saving thousands in interest - [ ] Having a higher monthly mortgage payment - [ ] Increasing the loan amount - [ ] Extending the loan term > **Explanation:** By paying off the principal quicker, you reduce the amount of interest paid over the life of the loan, which can result in saving thousands of dollars in interest. ### What does a typical monthly mortgage payment include? - [ ] Principal and interest only - [x] Principal, interest, taxes, and insurance - [ ] Interest and insurance only - [ ] Interest, insurance, and property maintenance fees > **Explanation:** A typical monthly mortgage payment includes principal, interest, taxes, and insurance. This is often abbreviated as PITI (Principal, Interest, Taxes, and Insurance). ### How does making bi-weekly payments help reduce the mortgage principal faster? - [x] By effectively making one extra total payment per year - [ ] By skipping payments every other month - [ ] By increasing interest rates - [ ] By lengthening the loan term > **Explanation:** Making bi-weekly payments results in 26 payments per year (equivalent to 13 monthly payments instead of the typical 12), which effectively reduces the amount of principal more quickly and lowers the total interest paid on the loan. ### What happens to the amount of interest due when the principal is reduced quicker than the original schedule? - [x] It is reduced - [ ] It remains the same - [ ] It increases - [ ] It is deferred > **Explanation:** When the principal is reduced quicker than the original schedule, the amount of interest due in subsequent months is reduced, because interest is calculated based on the remaining principal balance. ### What is NOT a benefit of reducing the principal balance of a mortgage quicker? - [ ] Less interest paid over the loan's life - [ ] Quicker loan payoff - [ ] Increased home equity - [x] Higher monthly interest payments > **Explanation:** Reducing the principal quicker results in paying less interest, paying off the loan sooner, and increasing home equity, not higher monthly interest payments. ### How does paying an extra $100 towards the principal affect a mortgage? - [x] It reduces the principal balance more quickly - [ ] It increases the overall interest paid - [ ] It results in a penalty from the lender - [ ] It lengthens the loan term > **Explanation:** Paying an extra $100 towards the principal reduces the principal balance more quickly, thereby decreasing the interest due and potentially shortening the life of the loan. ### Why might a borrower choose to make lump sum payments toward their mortgage principal? - [x] To accelerate loan payoff and save on interest - [ ] To lower their monthly payment immediately - [ ] To increase their loan amount - [ ] To extend their loan term > **Explanation:** Making lump sum payments toward the mortgage principal helps in accelerating the loan payoff and saving on interest over the life of the loan because the principal balance is reduced more quickly. ### Which scenario could result in a 30-year loan being paid off in 15 years? - [x] Making extra principal payments each month - [ ] Making smaller payments than required - [ ] Refinancing each year - [ ] Only paying the scheduled monthly amount > **Explanation:** By making extra principal payments each month, a borrower can reduce the principal balance faster, which can result in a 30-year loan being paid off in as little as 15 years. ... ### What impact does reducing the mortgage principal quicker have on the total interest paid over the life of the loan? - [x] It decreases the total interest paid - [ ] It increases the total interest paid - [ ] It has no impact on the total interest paid - [ ] It defers the total interest paid > **Explanation:** Reducing the mortgage principal quicker results in paying less cumulative interest over the life of the loan because interest is calculated based on the remaining principal balance. ### What is a common strategy to pay off a 30-year mortgage in a shorter period? - [x] Making bi-weekly payments - [ ] Consolidating the mortgage with other debts - [ ] Delaying payments to accumulate savings - [ ] Repainting and renovating the property > **Explanation:** By making bi-weekly payments, a borrower essentially makes one extra payment each year, which can significantly reduce the principal balance and shorten the mortgage term from 30 years to around 25 years. ### How might one unknowingly delay the reduction of their mortgage principal? - [x] Paying the minimum required payment only - [ ] Making extra principal payments - [ ] Refinancing to a shorter term - [ ] Switching to a bi-weekly payment plan > **Explanation:** By paying only the minimum required payment, the borrower does not accelerate the reduction of the principal, thus paying more interest over a longer period. ### What is one way lump-sum payments impact a mortgage? - [x] They can reduce the principal balance faster - [ ] They extend the loan term - [ ] They increase monthly interest payments - [ ] They lead to immediate penalty fees > **Explanation:** Lump-sum payments made toward the principal can effectively reduce the balance faster, which in turn decreases the interest paid and shortens the loan term.