Finance
When a Maine homeowner makes an 'extra principal payment' on their mortgage, the effect is:
AThe monthly payment decreases
BThe loan balance decreases, reducing future interest charges and shortening the loan term✓ Correct
CThe interest rate is reduced
DThe lender applies the payment to escrow
Explanation
Extra principal payments reduce the outstanding loan balance, which means future interest charges are calculated on a lower balance, reducing the total interest paid and shortening the loan's effective 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.
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.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Math Concepts
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