7.3A Mortgage Payments & Escrow Worksheet

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What is a mortgage?

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A mortgage is a loan specifically used to purchase real estate, where the property itself serves as collateral for the loan.

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What does APR stand for in mortgage terms?

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APR stands for Annual Percentage Rate, which represents the yearly cost of borrowing, including interest and fees.

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What is the difference between a 15-year and a 30-year mortgage?

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A 15-year mortgage has a shorter repayment term, resulting in higher monthly payments but less interest paid over time, while a 30-year mortgage has lower monthly payments but more interest paid overall.

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How do you calculate monthly mortgage payments?

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Monthly mortgage payments can be calculated using the formula: M = P[r(1+r)^n] / [(1+r)^n – 1], where M is the total monthly mortgage payment, P is the loan principal, r is the monthly interest rate, and n is the number of payments.

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What is escrow in relation to mortgages?

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Escrow is an account where funds are held by a third party to pay for property taxes and insurance on behalf of the homeowner.

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How do property taxes affect monthly mortgage payments?

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Property taxes are typically included in monthly mortgage payments through escrow, increasing the total amount paid each month.

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What is homeowners insurance?

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Homeowners insurance is a type of property insurance that covers losses and damages to an individual's home and assets in the home.

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What is the purpose of refinancing a mortgage?

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Refinancing a mortgage is done to obtain a lower interest rate, reduce monthly payments, or change the loan term.

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How do you determine the total interest paid over the life of a mortgage?

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Total interest paid can be calculated by subtracting the original loan amount from the total amount paid over the life of the loan.

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What is the significance of a lower interest rate in mortgage payments?

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A lower interest rate reduces the total cost of the loan and lowers monthly payments, making homeownership more affordable.