Explain why, in a fixed-rate mortgage, the amount of the mortgage payment applied to interest declines over time, while the amount applied to the repayment of principal increases.
Answer to relevant QuestionsWhy is the cash flow of a residential mortgage loan unknown? What are the two primary factors in determining whether or not funds will be lent to an applicant for a residential mortgage loan? What is the difference between a prime loan and a subprime loan? What does a conditional prepayment rate of 8% mean? Answer the below questions. (a) What is the cash flow yield of a mortgage pass-through security? (b)What are the limitations of cash flow yield measures for a mortgage pass-through security?
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