Question Carrie and Steve agree to a \( \$ 149,000 \) mortgage at \( 5.5 \% \) annual interest for 30 years. They have a monthly payment of \( \$ 846.01 \) and the interest paid in month one is \( \$ 682.92 \). Assuming they only make the minimum payment in month one, what do you know about their loan? Select the correct answer below: The monthly payment will increase and be more than \( \$ 846.01 \). The interest paid in month two will be \( \$ 682.92 \). The interest paid in month two will be less than \( \$ 682.92 \). The interest paid in month two will be more than \( \$ 682.92 \).

In a fixed-rate mortgage, the monthly payment remains constant throughout the life of the loan. However, the composition of each payment changes over time. Initially, a larger portion of the payment goes toward interest, and as the principal balance decreases, more of each payment goes toward reducing that principal. Given: - **Loan Amount:** \$149,000 - **Annual Interest Rate:** 5.5% - **Monthly Payment:** \$846.01 - **Interest in Month One:** \$682.92 **Why the Interest Decreases Each Month:** 1. **Interest Calculation:** The interest portion of the payment is calculated based on the remaining principal balance. 2. **Principal Reduction:** Each monthly payment reduces the principal, thereby decreasing the amount on which future interest is calculated. 3. **Subsequent Interest Payments:** Since the principal is decreasing, the interest calculated for each subsequent month will be less than the previous month's interest. **Conclusion:** - **The interest paid in the second month will be less than \$682.92** because the principal balance has been reduced after the first payment, leading to a lower interest calculation. **Correct Answer:** - **The interest paid in month two will be less than \$682.92.** Answer: The interest paid in month two will be less than $682.92.