Finance
A 'bi-weekly mortgage payment' plan in Louisiana reduces interest because:
AThe interest rate is lower for bi-weekly payers
BMaking half a payment every two weeks results in 26 half-payments (13 full payments) per year instead of 12, reducing the principal faster✓ Correct
CThe government subsidizes bi-weekly payers
DThe amortization period is cut in half automatically
Explanation
A bi-weekly payment plan results in 26 half-payments per year (equivalent to 13 full monthly payments instead of 12). The extra annual payment reduces the principal faster, significantly shortening the loan term and reducing total interest paid.
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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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