Understanding the True Cost of a Mortgage

This video tutorial explains how to calculate the true cost of a mortgage, focusing on the principal and interest components. It provides a step-by-step guide to determine monthly payments, total payments over a 30-year term, and the total interest paid. The video also offers tips on reducing interest costs by lowering the interest rate or shortening the loan term.

What are the two main components of a mortgage payment?

• Principal and taxes

• Principal and interest

• Taxes and insurance

• Interest and insurance

How is the principal amount adjusted when a down payment is made?

• It is doubled

• It is reduced by the down payment amount

• It remains the same

• It is increased by the down payment amount

What is the formula used to calculate the monthly mortgage payment?

• Principal plus interest rate times number of payments

• Principal minus interest rate divided by number of payments

• Principal times interest rate divided by number of payments

• Principal divided by interest rate

How many total payments are made in a 30-year mortgage term?

• 180

• 240

• 360

• 300

What is the true cost of a loan primarily composed of?

• Down payment

• Monthly fees

• Interest paid over the loan term

• Principal amount

Why might there be a discrepancy between calculated and actual interest paid?

• Because of rounding errors in monthly payments

• Because of incorrect loan term

• Due to changes in interest rates

• Due to changes in principal amount

What is one method to reduce the total interest paid on a mortgage?

• Increase the principal amount

• Decrease the monthly payment

• Increase the loan term

• Lower the annual interest rate

How does shortening the loan term affect the total interest paid?

• It increases the total interest paid

• It has no effect on the total interest paid

• It reduces the total interest paid

• It doubles the total interest paid

What happens to the monthly payment if the loan term is reduced from 30 years to 15 years?

• It remains the same

• It increases but not double

• It decreases

• It doubles

What is a potential benefit of renegotiating a lower interest rate?

• It increases monthly payments

• It extends the loan term

• It reduces the total interest paid over the loan term

• It increases the principal amount