Real Estate Math
A borrower obtains a $200,000 mortgage at 6% annual interest. What is the first month's interest payment?
A$800
B$1,000✓ Correct
C$1,200
D$1,500
Explanation
Monthly interest = $200,000 × 6% ÷ 12 = $200,000 × 0.005 = $1,000.
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Key Terms to Know
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.
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.
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