Finance
Which type of mortgage allows interest-only payments for an initial period, after which the borrower pays principal and interest?
AFully amortized mortgage
BGraduated payment mortgage
CInterest-only mortgage✓ Correct
DReverse mortgage
Explanation
An interest-only mortgage requires payments covering only the interest for an initial period (often 5–10 years). After this period, the loan resets and the borrower must pay principal and interest, typically causing payment increases.
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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.
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.
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.
Math Concepts
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