Illinois Real Estate Practice Exam

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Prepare for the Illinois Real Estate Test. Practice with flashcards and multiple choice questions, each question has hints and explanations. Get ready for your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

If Mr. and Mrs. Smith took a $280,000 loan at 6% interest for 30 years with a monthly payment of $1525, what is their loan balance after the first payment?

A. $279,875
B. $279,965
C. $280,000
D. $280,125

The correct answer is: A. $279,875

After the first payment, a portion of the monthly payment goes towards the interest on the loan while the remainder goes towards reducing the principal balance. In the early years of a mortgage, the majority of the monthly payment goes towards paying off the interest. Therefore, the loan balance after the first payment will not decrease significantly. Option A ($279,875) is the correct answer because after the first payment, the outstanding loan balance will only slightly decrease due to the majority of the initial payment going towards interest rather than principal. This option reflects a realistic scenario for the balance left on the loan after the first payment. Option B, C, and D do not accurately represent how a mortgage loan balance decreases over time with monthly payments.