Types of Credit Bell Ringer 6

What causes the total amount of interest paid on a mortgage to be so much higher than on other types of debts?

• The APR on a mortgage is typically between 20-30%, which is higher than for other types of debt

• The principal on a mortgage is high and the term is long

• Borrowers typically delay making mortgage payments because their home cannot be repossessed for nonpayment

• Homeownership is not very common in the US, so mortgages are priced high because demand is so low

Which of the following is a good reason to choose a 30-year, fixed-rate mortgage?

• You want to make high monthly payments and close your mortgage sooner

• You want to minimize the amount of interest you’ll pay over the life of the loan

• You want low, predictable monthly payments

• You want to take advantage of the ups and downs of the market and don’t mind risk

Danya has found her dream home, and it’s on the market for $200,000. Each of these is a way she can decrease the total amount she’ll pay EXCEPT…

• Increase her down payment

• Qualify for a lower interest rate

• Choose a shorter loan term

• Choose a mortgage with a higher APR

Amy and Chuck each buy a house in the same neighborhood for $250,000. Amy's monthly mortgage payment is $400 more per month than Chuck's. Which one of the following statements could explain this difference?

• Amy chose a shorter term for her mortgage, so her monthly payments are higher

• Amy made a larger down payment, so her monthly payments are also larger

• Chuck chose a shorter term for his mortgage, so his monthly payments are also lower

• Chuck has a lower credit score, so his interest payments are also lower

Trudy tells her mom that she wants to buy a house within two years of graduating from college. Her mom says Trudy will need a down payment first. What is a down payment?

• A large sum of money you pay when taking out a mortgage so that the principal of your loan is smaller

• A specific type of tax advantaged bank account used for saving money to buy a house

• The first year’s worth of property taxes, held in reserve

Which of the following is true about fixed and adjustable-rate mortgages?

• Fixed-rate mortgages have a constant payment every month, but an interest rate that increases throughout the term of the loan

• Fixed-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions

• Adjustable-rate mortgages have a fixed interest rate for a few years, after which time the interest rate fluctuates according to general market conditions

• The two mortgages work the same way but are called different names depending if they come from a bank or a credit union