Finance
A Massachusetts borrower is comparing a 15-year and a 30-year mortgage at the same interest rate. The 15-year mortgage will have:
ALower monthly payments and less total interest paid
BHigher monthly payments but significantly less total interest paid over the loan life✓ Correct
CThe same monthly payments as the 30-year
DLower monthly payments but more total interest paid
Explanation
A 15-year mortgage has higher monthly payments than a 30-year (because principal is repaid in half the time) but results in dramatically less total interest paid over the life of the loan.
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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.
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.
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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