# Ultimate Amortization Quiz

By: Dave Roos
2 min
Image: Thomas Barwick/Getty Images

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?"
More money
Death pledge

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?
Principal and interest
Interest and term
Principal and term

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?
\$0
\$425
\$850

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?
Investment banking
Antique appraisal

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?
1860s
1930s
1970s

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?
20 percent
40 percent
80 percent

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:
Loan amount, annual interest rate and term of the loan
Year of the loan, annual interest rate and size of the house in square feet
Location of the house, loan amount and annual interest rate

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?"
30-year fixed mortgage

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?
30
360
690

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?
When the payment is due and when it is considered late
The amount of the payment and how much it will increase the next month
How much of the payment is principal and how much is interest

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?
Year 5
Year 11
Year 16

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?
\$85,783.34
\$139,883.68
\$211,673.90

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?
Accrual accounting
Cash accounting
Debit accounting

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?
A popular method of accounting for very small businesses.
A method of accounting in which income and expenses are reported when sales or purchases are made, not when the cash actually changes hands.
Technically illegal, it's a method of accounting used by only the most "creative" organizations.

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?
Office equipment
Delivery vans

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?
7 years
17 years
27 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?
Brand names
Life insurance

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?
Assets
Liabilities
Investments

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?
Overcost
Goodwill

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?
Section 197
Section 13,457
Trick question; there is no such section