Finance
A Rhode Island seller agrees to carry back a second mortgage at 5% for $50,000. What is the annual interest payment?
A$2,000
B$2,500✓ Correct
C$3,000
D$3,500
Explanation
Annual interest = $50,000 x 0.05 = $2,500.
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Key Terms to Know
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.
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.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
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