Finance
A borrower in Alaska who makes a voluntary additional principal payment on their mortgage will:
AExtend the loan term
BReduce the outstanding principal balance and pay less total interest over the life of the loan✓ Correct
CReduce only the interest rate
DReduce the monthly payment immediately
Explanation
Extra principal payments reduce the outstanding loan balance, which reduces the interest accruing on future payments. This results in paying less total interest and either shortening the loan term or reducing future payments, depending on the loan's structure.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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