Finance
A Maine home buyer is considering a 15-year vs. a 30-year mortgage. Compared to the 30-year loan, the 15-year loan typically has:
AA higher total interest cost and higher monthly payment
BA lower interest rate and higher monthly payment but less total interest paid✓ Correct
CThe same interest rate but lower payments
DA lower monthly payment and the same total interest cost
Explanation
A 15-year mortgage typically has a lower interest rate than a 30-year mortgage, but higher monthly payments because the loan is repaid in half the time. The total interest paid over the life of the loan is significantly less.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe 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.
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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