Interest portion = remaining balance × annual rate ÷ 12
Before you read
Test yourself first: 5 questions
Question 1 of 5
Negative amortization occurs when:
Answer: A. If scheduled payments are less than the interest due, the unpaid interest is added to principal and the balance increases.
Question 2 of 5
A buyer takes title and keeps making payments on the seller's existing mortgage, but the lender does NOT release the seller from liability. The buyer took title:
Answer: B. Taking title 'subject to' means the buyer pays the loan but the original borrower stays liable. An assumption WITH novation releases the seller.
Question 3 of 5
In a fully amortized loan, by the end of the term:
Answer: B. Fully amortized payments cover principal and interest so the balance reaches zero exactly at the end of the term — no balloon.
Question 4 of 5
A homebuyer's loan payment stays the same for 30 years, but the balance is fully paid at the end. In month one, most of the payment went to:
Answer: B. In a fully amortized level-payment loan, early payments are mostly INTEREST (balance × rate ÷ 12 is at its peak); the principal share grows each month as the balance falls.
Question 5 of 5
Under federal law (the Homeowners Protection Act), borrower-paid PMI on a conventional loan must automatically terminate when the loan balance reaches what percentage of the original property value, assuming payments are current?
Answer: C. The Homeowners Protection Act requires automatic cancellation of borrower-paid PMI once the principal balance is scheduled to reach 78% of the original value, if the borrower is current.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- Fully amortized: level payment, interest first, principal grows over time; $0 at the end
- Interest portion = remaining balance × annual rate ÷ 12
- Balloon: payments don't fully amortize — big lump due at the end (partially amortized)
- ARM: rate = index + margin; caps limit per-adjustment & lifetime jumps
- Negative amortization: payment < interest due → balance GROWS
Amortization — Where Payments Go: FAQs
Is Amortization — Where Payments Go on the real estate exam?
Yes. Financing & Lending is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
