Mortgage payments
Mortgages, loans taken to purchase a property, involve regularpayments at fixed intervals and are treated as reverse annuities.Mortgages are the reverse of annuities, because you get a lump-sumamount as a loan in the beginning, and then you make monthlypayments to the lender.
You’ve decided to buy a house that is valued at $1 million. Youhave $100,000 to use as a down payment on the house, and want totake out a mortgage for the remainder of the purchase price. Yourbank has approved your $900,000 mortgage, and is offering astandard 30-year mortgage at a 12% fixed nominal interest rate(called the loan’s annual percentage rate or APR). Under this loanproposal, your mortgage payment will be per month.(Note: Round the final value of any interest rate used to fourdecimal places.)
Your friends suggest that you take a 15-year mortgage, because a30-year mortgage is too long and you will pay a lot of money oninterest. If your bank approves a 15-year, $900,000 loan at a fixednominal interest rate of 12% (APR), then the difference in themonthly payment of the 15-year mortgage and 30-year mortgage willbe ?(Note: Round the final value of any interest rateused to four decimal places. )
It is likely that you won’t like the prospect of paying moremoney each month, but if you do take out a 15-year mortgage, youwill make far fewer payments and will pay a lot less in interest.How much more total interest will you pay over the life of the loanif you take out a 30-year mortgage instead of a 15-yearmortgage?
$1,777,192.70
$1,916,035.88
$1,388,431.80
$1,638,349.52
Which of the following statements is not true aboutmortgages?
The payment allocated toward principal in an amortized loan isthe residual balance—that is, the difference between total paymentand the interest due.
Mortgages always have a fixed nominal interest rate.
The ending balance of an amortized loan contract will bezero.
