Finance

Amortization is the process of spreading out loan payments over time so that each payment covers both interest and a portion of the principal, eventually reducing the balance to zero. This differs from interest-only payments, where the principal balance remains unchanged throughout the payment period.

The loan-to-value ratio measures the mortgage amount against the property's appraised value or purchase price, meaning an 80% LTV represents a loan for 80% of that value. A down payment of 80% is incorrect, as the borrower would only need a 20% down payment to cover the remaining equity.

PITI represents the four standard components of a monthly mortgage payment: principal, interest, taxes, and insurance. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Option A is incorrect because 'price' represents the total purchase cost of the home, not a recurring component of the monthly loan payment itself.
• !A down payment of 80% is incorrect, as the borrower would only need a 20% down payment to cover the remaining equity.
• !Option A is incorrect because an LTV of 70% provides sufficient equity, making PMI unnecessary.

Answer each from memory — you'll see instantly whether you're right and why.

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