Unit 6 Flashcard 2 Review

Front

What is the formula to calculate monthly mortgage payment?

Back

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.

Tags

CCSS.8.EE.C.7B

Front

How do you calculate the interest portion of the first mortgage payment?

Back

Interest = Principal x Monthly Interest Rate. For a $205,000 mortgage at 1.92% APR, the monthly interest rate is 0.0016, so Interest = 205,000 x 0.0016 = $328.

Tags

CCSS.7.RP.A.3

Front

What is the principal portion of a mortgage payment?

Back

The principal portion is the amount of the payment that goes toward reducing the loan balance. It can be calculated by subtracting the interest portion from the total monthly payment.

Front

What is the back-end ratio in mortgage calculations?

Back

The back-end ratio is the percentage of a borrower's gross monthly income that goes toward paying debts, including the mortgage, property taxes, and insurance. It is used to assess a borrower's ability to manage monthly payments.

Tags

CCSS.7.RP.A.3

Front

How do you calculate the monthly rent budget based on income?

Back

Monthly Rent Budget = Annual Income x Rent Percentage / 12. For Martin, it is $66,000 x 0.28 / 12 = $1,540.

Tags

CCSS.6.RP.A.3C

Front

What is the significance of the APR in a mortgage?

Back

APR (Annual Percentage Rate) represents the total yearly cost of borrowing, including interest and fees, expressed as a percentage. It helps borrowers compare different loan offers.

Front

How do you determine the total monthly payment for a mortgage?

Back

The total monthly payment includes principal, interest, property taxes, and homeowner's insurance. It can be calculated using the mortgage payment formula and adding other costs.

Front

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

Back

Fixed-rate mortgages have a constant interest rate throughout the loan term, while adjustable-rate mortgages have interest rates that can change periodically based on market conditions.

Front

How do you calculate the monthly interest for a mortgage?

Back

Monthly Interest = Loan Amount x (Annual Interest Rate / 12). For a $101,000 mortgage at 3.15% APR, Monthly Interest = 101,000 x (0.0315 / 12) = $265.13.

Tags

CCSS.7.RP.A.3

Front

What is the purpose of homeowner's insurance?

Back

Homeowner's insurance protects against damages to the home and liability for injuries that occur on the property. It is often required by lenders.