# Ultimate Amortization Quiz

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Don't let the chumps in the accounting department brag about their mad amortization skills. Show them who's the boss with our amortization quiz.

# What was the original Old French meaning of the word "mortgage?"

Nothing takes the fun out of home buying like a real estate agent asking you to sign a death pledge.

# Amortization allows a borrower to pay off which two parts of the home loan with one fixed monthly payment?

It might take you 30 years, but at least you'll pay that loan off (principal and interest) completely.

# With amortization, if you pay \$850 for your first mortgage payment, how much will you pay for your last mortgage payment?

That's the beauty of amortization; every single monthly mortgage payment is the same.

# Outside of mortgage lending, in what other financial field is amortization used?

Accounting may not be a sexy profession, but it can help you afford a sexy car.

# The first mortgages in America were introduced in what decade?

The traditional 30-year fixed mortgage was created by the Federal Housing Authority during the Great Depression.

# Before the Federal Housing Authority introduced the 30-year fixed mortgage, what percentage of American families were homeowners?

Mortgages before the 1930s only covered 50 percent of the cost of the house, so only 40 percent were home owners.

# If you have these three pieces of information about a mortgage loan, you can calculate the amortization table:

It requires some high-school level math, but the only numbers you really need are the loan amount, the interest rate and the term (or length) of the loan.

# Which of the following mortgage loans is considered "self-amortizing?"

Only a mortgage with a fixed interest rate and term can be self-amortizing.

# How many identical monthly mortgage payments will you make over the life of a 30-year fixed mortgage?

If you didn't get that one, may we suggest an investment in a calculator?

# An amortization table shows what two importance pieces of information about each monthly mortgage payment?

The amount of interest you pay over the life of the loan is the really scary part.

# On a typical 30-year fixed loan, during what year of the amortization table does the borrower start paying back more principal than interest?

Up until year 16, every monthly payment you make is more than 50 percent interest.

# What is the total interest paid over 30 years on a \$150,000 mortgage loan with an annual interest rate of five percent?

Yes, you end up paying nearly twice as much for the house when you spread out the payments over 30 years.

# Depreciation and amortization are both generally accepted accounting principles of what accounting method?

Since accounts can get overly "creative," the industry has established a set of generally accepted accounting principles called GAAP. This is used in accrual accounting.

# Which of the following statements most accurately describes accrual accounting?

Cash accounting, popular with small businesses, only reports transactions when the money changes hands.

# Which of the following business expenses would NOT be covered by depreciation?

Depreciation can only be used to spread out the costs of tangible goods. Amortization covers all "intangible" assets.

# The legal life of a patent is how many years?

Seventeen years is the maximum legal life, although the useful life of a patent can be shorter.

# Which of the following business expenses CANNOT be amortized for tax purposes?

Amortization only covers intangible assets. Some others are patents, trademarks and something called goodwill.

# Which of the following items is NOT typically included on a company's annual balance sheet?

After assets and liabilities, the third most important item on a balance sheet is ownership equity.

# What is the accounting term for a business expense that is higher than the fair market value of the asset?

Sometimes an asset is worth more to a company than its cash value. Amortization of goodwill allows businesses to absorb the cost over a few balance sheets.

# The "amortization of intangibles" is covered in what section of the U.S. tax code?

If you picked Section 197 , then you're either an accountant, a cheater or both.