Finance
In a Virginia interest-only mortgage, the monthly payment covers:
APrincipal and interest equally
BOnly interest — the principal balance does not decrease during the interest-only period✓ Correct
COnly principal — interest is deferred
DTaxes and insurance only
Explanation
During the interest-only period, the borrower pays only the interest on the outstanding balance. The principal remains unchanged, and when the interest-only period ends, fully amortizing payments begin on the original balance.
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Key Terms to Know
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.
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.
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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