Finance
An 'assumable' mortgage in today's rising rate environment would be most valuable when:
AInterest rates are declining
BThe existing loan has a lower interest rate than current market rates✓ Correct
CThe buyer has excellent credit and can qualify for any loan
DThe property is being sold at a loss
Explanation
An assumable loan with a below-market interest rate is extremely valuable when current market rates are higher. The buyer takes over the existing low-rate loan, paying the difference in cash or through a second mortgage, saving significantly on interest costs.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe 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.
Math Concepts
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