Finance
A mortgage that requires equal monthly payments applied first to interest, with the remainder reducing the principal balance, is called a(n):
ABalloon mortgage
BFully amortizing mortgage✓ Correct
CInterest-only mortgage
DAdjustable-rate mortgage
Explanation
A fully amortizing mortgage has equal monthly payments that cover both interest and principal. Early payments are mostly interest; over time, more of each payment reduces the principal until the loan is fully paid at the end of the term.
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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.
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.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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