California Real Estate SalespersonFinancingHard
A buyer takes out a $250,000 fully amortized loan at a 6% annual interest rate, with a monthly payment of $1,498.88. What is the principal portion of the very first monthly payment?
- A$1,498.88
- B$500.00
- C$248.88
- D$1,250.00
Show answer & explanationAnswer & explanation
Correct answer: C. $248.88
First month's interest = $250,000 × (0.06 ÷ 12) = $1,250.00. Principal portion = total payment − interest = $1,498.88 − $1,250.00 = $248.88.
Why the other options are wrong
- A. This is the total payment amount, not the principal portion alone.
- B. This does not match the calculated interest or principal figures.
- D. This is the interest portion, not the principal portion.
First-Month Amortization Split
In the first payment of an amortized loan, interest is calculated on the full loan balance, and the remainder of the payment reduces principal.
- Monthly interest = loan balance × (annual rate ÷ 12)
- Principal portion = total payment − interest portion
- Early payments have the smallest principal reduction of the loan term
Memory trick: Payment minus interest equals principal peeled off.