4.6 Mortgages

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1. How does an annual percentage rate (APR) for mortgages differ from a more traditional interest rate?

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One downside of an adjustable-rate mortgage is that it is riskier than a fixed-rate mortgage. Explain why

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3. In the video’s amortization example, the borrower makes a $711 payment, where $375 goes toward paying interest and $336 goes toward paying the principal. Should the borrower be worried that they’ll never pay off the mortgage? Why or why not?

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4. Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?

Adjustable Rate Mortgage Vs. Fixed: Which Is Right for You?Business Insiderlighning bolt iconChevron iconChevron iconChevron iconChevron iconBack to Top

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1. ^{Decide which type of mortgage each person listed here might choose.}

   ^{a. Carl, who is living in Lexington with his girlfriend until she finishes her med school program}

   ^{b. Tanya, who’s worked out a budget that allows her to pay her mortgage and save for her three young children’s college funds}

   ^{c. Kristie, who needs lower payments for a few years until she’s done paying off her student loans, and who thinks she could then afford far greater payments}.

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Multiple Choice

1. 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

Multiple Choice

2. 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

Multiple Choice

3. 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