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Real Estate Basics · Level 4 of 5 · Advanced

Mortgages and the math

Interest, amortization, down payments, and debt-to-income.

Study notes

  1. A fixed-rate mortgage keeps the same interest rate for the life of the loan. An adjustable-rate mortgage (ARM) can change after an initial period.
  2. Amortization means each payment covers interest first and principal second. Early payments are mostly interest.
  3. Conventional loans with less than 20% down usually require private mortgage insurance (PMI). FHA loans have their own mortgage insurance premiums.
  4. Lenders look at debt-to-income ratio (DTI): monthly debt payments divided by gross monthly income.
  5. One point usually costs 1% of the loan amount and can buy a lower rate. Compare offers using the APR and the Loan Estimate.

Quiz: 6 questions

Choose one answer for each question, then check your answers. Score 5 of 6 to pass. Then enter your name and email to download a PDF certificate and have a copy emailed to you. Answers are graded in your browser.

1. On a fixed-rate mortgage, the interest rate:

2. Early in a 30-year amortized loan, most of each payment goes to:

3. Gross monthly income is $6,000 and monthly debt payments are $1,800. DTI is:

4. A buyer puts 10% down on a conventional loan. What is usually required?

5. One discount point on a $250,000 loan usually costs:

6. Which document helps compare lender offers side by side?

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