Question

The monthly mortgage loan constant for a fully amortising constant payment loan with an annual rate of 9% is .008997. Assuming another loan has the same principal amount (PV), term (N), and interest rate (i) and the mortgage loan constant is .00750, this loan will be:

a) Partially amortising
b) Zero amortising
c) Negatively amortising

Answer 1

The second loan will be partially amortising.

Step-by-step explanation:

The mortgage loan constant represents the monthly payment required to fully repay a loan over its term. It is calculated by dividing the loan constant by the loan amount. In this case, the first loan has a mortgage loan constant of .008997, while the second loan has a mortgage loan constant of .00750.

Since the second loan has a lower mortgage loan constant, it means that the monthly payment required to fully repay the loan is lower than the first loan. This indicates that the second loan will be partially amortising, as the payments will not fully repay the loan by the end of its term.