Finance
Which type of mortgage loan is characterized by a fixed interest rate and equal monthly payments that fully repay the loan over its term?
AInterest-only mortgage
BBalloon mortgage
CFully amortizing fixed-rate mortgage✓ Correct
DAdjustable-rate mortgage
Explanation
A fully amortizing fixed-rate mortgage has a constant interest rate and equal monthly payments structured so that each payment covers accrued interest and reduces the principal balance, with the loan fully repaid by 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.
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.
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.
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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