Real Estate Math
A Rhode Island home purchased for $250,000 three years ago is now worth $295,000. What is the annual average appreciation rate?
A5.5%
B6.0%✓ Correct
C6.3%
D7.0%
Explanation
Total appreciation: $45,000 / $250,000 = 18% over 3 years. Annual rate: 18% / 3 = 6% per year (simple method).
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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.
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