MF.A.1.2:HOME BUYING MATH

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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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How is a monthly mortgage payment calculated?

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Monthly mortgage payments are calculated using the loan amount, interest rate, and loan term, typically 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 the significance of a down payment in home buying?

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A down payment is the initial amount paid upfront when purchasing a home, which reduces the loan amount and can affect the mortgage terms and monthly payments.

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What is the difference between fixed-rate and adjustable-rate mortgages?

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A fixed-rate mortgage has a constant interest rate throughout the loan term, while an adjustable-rate mortgage has an interest rate that may change periodically based on market conditions.

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What factors can affect the monthly mortgage payment?

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Factors include the loan amount, interest rate, loan term, property taxes, homeowner's insurance, and private mortgage insurance (PMI) if applicable.

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What is private mortgage insurance (PMI)?

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PMI is insurance that protects the lender if the borrower defaults on the loan, typically required when the down payment is less than 20%.

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How does credit score impact mortgage rates?

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A higher credit score generally leads to lower mortgage rates, as it indicates to lenders that the borrower is less risky.

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What is the loan term in a mortgage?

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The loan term is the length of time over which the loan must be repaid, commonly 15, 20, or 30 years.

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What is the purpose of a mortgage calculator?

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A mortgage calculator helps potential homebuyers estimate their monthly payments based on loan amount, interest rate, and loan term.