Question

Which one of these quantities is positively correlated with the total interest paid on a mortgage? (Note: Total interest is the sum of all interest payments throughout the life of a mortgage.)

(A) Amortization period (B) Amount of down payment (C) Amount of a yearly prepayment (also called lump sum) (D) Payment frequency (number of payments per year)

Answer 1

Here the answer is (A) Amortization period.

Total interest paid on a mortgage and amortization period is positively correlated,

In Positive correlation, relationship between two variables moves in same direction. A positive correlation exists when one variable decreases as the other variable decreases or one variable increases while the other increases.

Amortization is the process of spreading out a loan into a series of fixed payments over time, you will be paying off the loan's interest and principal in different amounts each month, although your total payment remains equal each period.

The amortization period refers to the length of time, in years, that a borrower chooses to pay off a mortgage.

Longer amortization periods involve smaller monthly payments and higher total interest costs over the life of the loan.

In short, longer the amortization period, the more you pay in interest, shorter the amortization period, the less you pay in interest.