Is it true that the outstanding balance on a mortgage loan can be calculated as the present value of the remaining payments, discounted at the contract interest rate?

The statement is true because the outstanding balance on a mortgage loan represents the present value of the future payments that a borrower is required to make. The present value is calculated by discounting these future cash flows—specifically, the remaining mortgage payments—back to the present day using the contract interest rate.

In mortgage finance, each payment that a borrower makes consists of both principal and interest. To determine how much of the loan is still owed at any given time, one can take the full series of future payments (which is typically constant in the case of a fixed-rate mortgage) and discount them to their present value based on the interest rate stated in the loan agreement. This technique is rooted in financial theory, where cash flows are adjusted for the time value of money.

Consequently, the correct understanding of this relationship is key in both practical mortgage calculations and broader real estate finance applications.