Which statement about interest on a fully amortized mortgage or deed of trust loan is true?

• A. Interest may be paid in advance
• B. Interest may be paid in arrears
• C. Interest is always paid at the start of the loan
• D. Interest is paid at closing

Answer: (B)

For a fully amortized loan, payments are due after the period has elapsed, so interest is paid in arrears. Each payment covers the interest that accrued on the outstanding balance for that period and a portion that reduces principal, with the balance gradually declining until it’s paid off at the end of the term. The first payment, due one period after closing, reflects interest for that initial period (and may include a small amount of principal). While some prepaid interest can occur at closing to cover the gap to the first payment, the ongoing pattern is interest in arrears. The other statements aren’t the standard practice: interest isn’t always paid at the start, and paying interest at closing isn’t the regular pattern for ongoing payments.