Chapter 3 Flashcards
1
Q
Are mortgages annuities or perpetuities?
A
Annuities
2
Q
How do you find the monthly payment on a loan?
A
- Subtract down payment from mortgage
- Factor out EAR then find EMR
- Find C1 (monthly payment) with regular annuity formula
3
Q
How do you find outstanding mortgage balance after T years?
A
PV = C1 / EMR * [1 - 1/(1+EMR)^T]
Where T equals number of payments left and C1 equals monthly payment.
4
Q
What is an amortization period?
A
The length of time it would take to pay off a mortgage.
5
Q
How to calculate interest paid?
A
Interest paid = total amount paid - change in loan balance
6
Q
How to calculate amount spent on interest payments over the life of the mortgage?
A
monthly payment * number of payments - loan principle (balance of the mortgage)
7
Q
What is a mortgage term?
A
The length of time a mortgage agreement will be in effect.
8
Q
A
