Amortization

amortization

Intangible assets may include loans and patents. ______ will spread their cost over their useful life.

Beginning; PMT; Interest; Principal; Ending

The column headings on an amortization schedule will be # (representing the PMT #), ______ Balance, ____ (abbrev.), ______, ______, and ______ Balance.

fall

An ARM would make sense when interest rates are expected to _____ (rise/fall).

annuity

A series of monthly loan payments represents an _____--a stream of equal monthly cash flows.

higher

A shorter loan will result in ______ (higher/lower) monthly payments.

15

A 30 year and 15 year loan will have different interest rates b/c of Maturity Risk Premium. The ____ year loan will have the lower total rate.

loan

A ____ is the PVA.

lender

A _______ will evaluate your mortgage loan application by verifying your income and credit rating but also by calculating the three big ratios.

mortgage

Closing costs are all the fees you have to pay on the day you buy a house and acquire a _____.

principal;

Creating an amortization schedule: 1) Determine the Beginning Balance (the amount of _____ yet to be repaid). 2) Determine the monthly total payment (with the formula). 3) Determine the monthly interest payment (Interest = Beg. Balance x (r/m). 4) Determine the monthly principal payment (Principal = PMT - Interest). 5) Determine the Ending Balance.

lower

Higher monthly payments on a loan will result in ______ (higher/lower) total interest.

amortization

How can you tell how much of each monthly mortgage payment is principal and how much is interest? By creating a loan ________ schedule.

$899.33

I'm buying a house that costs $187,500. I'll pay 20% down and borrow the rest. The down payment is $37,500; the loan is for $150,000. I qualify for a 30-year fixed-rate mortgage at 6% compounded monthly. How much is each monthly payment?

28

If a lender allows you to borrow more than ____% of your gross income, be careful!

20

If a lender allows you to make a smaller down payment than ____%, be careful!

$1,500

On a $150,000 loan, 1 point equals ______.

exceed

On an amortization schedule, the total interest will ______ (be lower than/exceed) the principal.

F

T/F. A buyer earning $40,000 per year should be able to afford a $120,000 to $150,000 home.

T

T/F. As a rule of thumb, home buyers can usually afford a home that costs 2x - 2.5x their annual gross income.

36; 36

The Back-end ratio should not exceed ___%. In other words, total debt payments (it's also called ____-to-income ratio) should not exceed ___%.

28; 28

The Front-end ratio should not exceed ____%. In other words, PITI (Principle + Interest + Taxes + Insurance) should not exceed ____% of your gross income.

80; 20

The Loan-to-value ratio should not exceed ____%. This means that the down payment should be at least _____%.

origination; discount

There are two types of points: an ________ fee, which is a commission paid to the lender to cover his/her cost of creating the loan; and ______ points, which are prepaid interest on a loan which allow the borrow to "buy" a lower rate.

interest

Variable rate loans (ARMS - Adjustable Rate Mortgages) bear ______ rates that are reset, usually on an annual basis.

no

We are currently experiencing record low interest rates, so are ARMS a good idea? (yes/no)

80; 28; 36; 36

When determining whether to buy a house, the loan-to-value ratio should not exceed ____%, the front-end ratio should not exceed ___%, and the back-end ratio should not exceed ____%. To remember this, say "Around the World in 80/28 Days Later, I got a perfect score of ____ on the ACT."

point

Wrt mortgages, a "_____" is 1% of the original principal amount, paid on the day the loan is obtained.

predatory

______ lenders may allow you to borrow much more than you can comfortably afford.

depreciation; amortization

_______ spreads a tangible asset's cost over its useful life. ________ spreads an intangible asset's cost over its useful life.