Mortgage Math 1

Question 1

Annual Percentage Rate (APR)

Answer 1

This is a measure of the cost of credit, including interest and other charges, expressed as a yearly rate. Since all lenders, under federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. The APR is adjusted for the time value of money, so that dollars paid by the borrower up-front carry a heavier weight than dollars paid in the future; however, it is calculated on the assumption that the loan runs to term.

Question 2

Simple Interest

Answer 2

Interest paid on only the original principal of a loan, or on the amount of a credit account.

Question 3

PITI Payment

Answer 3

Is typically what our industry considers to be the monthly payment obligation for the borrower. P=principal, I=interest, T= property tax, I=insurance

Question 4

Mortgage Insurance

Answer 4

An insurance policy that protects lenders and/or borrowers against some or most of the losses that can occur when the responsible party defaults on a mortgage loan.

Question 5

Revolving Debt

Answer 5

A credit arrangement in which a consumer is pre-approved for a line of credit and makes purchases against that credit. Credit cards and Home Equity Lines of Credit (HELOCs) are a common form of this.

Question 6

Appraised Value

Answer 6

Estimation of the current market value of a property.

Question 7

Net

Answer 7

What’s left after paying all costs (the opposite of gross).