California Real Estate Practice Exam

A buyer has purchased a residence for $100,000 utilizing VA entitlement to finance the entire purchase price. The interest rate = 12%; combined monthly payments for 30 years will accumulate to be $370,300. What will be the initial month's principal payment?

1. $0.00

2. $128.61

3. $28.61

4. $78.61

The correct answer is: $0.00

In a typical mortgage structure, the initial monthly payment consists of both principal repayment and interest. However, in the case of a VA loan where it might be structured with a particular payment plan, it is possible for the initial principal payment to be zero depending on the loan terms, although this is relatively uncommon. If the entire purchase price of $100,000 is financed using a VA loan at a 12% interest rate, the overarching monthly payment is determined using the loan's amortization schedule. During the earliest periods of the loan, a larger portion of the payment goes towards interest, especially given the high-interest rate. In this specific scenario, the question indicates that the total amount accumulated over 30 years will be $370,300 in payments, which suggests that the initial structure heavily leans towards interest rather than principal. If the interest accrued in the first month offsets the amount being paid, it could indeed result in the principal payment being zero initially. This situation implies that due to the high-interest rate and the loan's initial monthly structure, the entire payment initially goes towards servicing the interest, leaving no portion to reduce the principal balance. Thus, the statement that the initial principal payment is $0.00 can be validated by understanding how amort