Question 13

The interest portion of a monthly mortgage payment is typically paid in arrears.

Monthly mortgage payments are structured such that the interest is paid in arrears, meaning that the payment covers the interest that has accrued in the previous month.

A) in arrears

This option is correct because mortgage payments are made at the end of the period they cover. For example, a payment made in January covers the interest that has built up during December, which is the definition of paying in arrears.

B) in advance

This option is incorrect as paying in advance would imply that the payment covers future interest rather than past interest. Mortgages do not operate this way; payments are made for the interest that has already accrued.

C) when the lender asks for it

This option is incorrect because mortgage payments are not contingent upon the lender's request. Borrowers are obligated to make their payments on a scheduled basis, typically monthly, regardless of the lender's input.

D) at a time established by the borrower

This option is incorrect because the timing of mortgage payments is generally standardized by the loan agreement and not solely determined by the borrower. Borrowers cannot unilaterally decide when to make payments outside of the established schedule.

Conclusion

The correct answer is "in arrears" because it accurately reflects the standard practice of mortgage payments being due for interest that has already been accrued. All other options fail to align with the typical payment structure of mortgages, which is fixed and does not allow for flexible timing or contingent payments.