Financial Algebra Home Ownership

Front

What is a mortgage?

Back

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

Front

What is an escrow account?

Back

An escrow account is a financial account where funds are held by a third party (usually a lender) to pay property taxes and insurance on behalf of the borrower.

Front

How do you calculate the monthly mortgage payment?

Back

The monthly mortgage payment 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 amount, r is the monthly interest rate, and n is the number of payments.

Front

What is a down payment?

Back

A down payment is the initial upfront payment made when purchasing a home, typically expressed as a percentage of the purchase price.

Front

What is the purpose of property taxes?

Back

Property taxes are levied by local governments to fund public services such as schools, roads, and emergency services.

Front

What is homeowner's insurance?

Back

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

Front

What is the back-end ratio in mortgage lending?

Back

The back-end ratio is a measure of a borrower's total monthly debt payments (including the mortgage) divided by their gross monthly income, expressed as a percentage.

Front

How do you calculate the loan amount after a down payment?

Back

Loan Amount = Purchase Price - Down Payment. For example, if the purchase price is $245,000 and the down payment is 20%, the loan amount is $196,000.

Front

What are common upfront costs when renting an apartment?

Back

Common upfront costs include first month's rent, last month's rent, security deposit, application fees, and any additional fees like credit checks.

Front

What is the formula to calculate annual interest on a mortgage?

Back

Annual Interest = Loan Amount x Interest Rate. For example, if the loan amount is $196,000 and the interest rate is 6%, the annual interest is $11,760.