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Questions and Answers
Which one of the following best describes the difference between an annual percentage rate (APR) for mortgages and a more traditional interest rate?
Which one of the following best describes the difference between an annual percentage rate (APR) for mortgages and a more traditional interest rate?
- The APR is only applicable to adjustable-rate mortgages, while the traditional interest rate is applicable to fixed-rate mortgages.
- The APR is fixed throughout the loan term, while the traditional interest rate may change over time.
- The APR is calculated based on the borrower's credit score, while the traditional interest rate is not affected by credit score.
- The APR includes both the interest rate and additional fees, while the traditional interest rate only includes the interest charged on the loan. (correct)
Why is an adjustable-rate mortgage considered riskier than a fixed-rate mortgage?
Why is an adjustable-rate mortgage considered riskier than a fixed-rate mortgage?
- Adjustable-rate mortgages require a larger down payment, making them less affordable for borrowers.
- Adjustable-rate mortgages have fluctuating interest rates, which can lead to unpredictable monthly mortgage payments. (correct)
- Adjustable-rate mortgages have longer loan terms, resulting in higher overall interest paid.
- Adjustable-rate mortgages have stricter eligibility requirements, making them harder to qualify for.
Should the borrower be worried that they'll never pay off the mortgage if $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 if $375 goes toward paying interest and $336 goes toward paying the principal?
- No, because the interest payment is necessary to compensate the lender for lending the money.
- Yes, because the borrower is not paying enough towards the principal to make significant progress in paying off the mortgage.
- No, because the borrower is making regular payments that contribute to both the interest and principal. (correct)
- Yes, because the interest payment is higher than the principal payment, indicating a long repayment period.
Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?
Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?
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