Humber/Ontario Real Estate Course 2 Exam Practice

What is an effective way for a mortgagor to reduce monthly payments on an amortized mortgage?

1. Arrange a cash back when negotiating the mortgage.

2. Arrange a mortgage that allows principal prepayments.

3. Extend the amortization from 15 years to 25 years.

4. Reduce the mortgage term.

The correct answer is: Extend the amortization from 15 years to 25 years.

Extending the amortization from 15 years to 25 years is an effective way for a mortgagor to reduce monthly payments on an amortized mortgage. By spreading the principal amount over a longer period, the monthly payments decrease, making them more manageable for the mortgagor. This option does not alter the interest rate or the principal amount but simply extends the payment period. Option A, arranging a cash back when negotiating the mortgage, is not a common way to reduce monthly payments. Cash backs are usually used for closing costs or renovations and do not directly affect the mortgage payments. Option B, arranging a mortgage that allows principal prepayments, could reduce the overall interest paid over time but may not affect the monthly payments unless the mortgagor chooses to make extra payments. Option D, reducing the mortgage term, would actually increase monthly payments as the principal would need to be paid off in a shorter period, leading to higher monthly amounts.