Simple and Compound Interests, and Points Flashcards
What is Interest from the buyer’s POV?
Interest is payment for being allowed to use the money
What is Interest from the lender’s perspective?
Interest is the money earned/received from a loan invesment
What are the 3 types of Interest?
Simple Interest, Add-on Interest, and Compound Interest
What is Simple Interest?
It’s money that is paid for the amount of principal the borrower still owes
What happens with simple interest when the money is repaid?
The payments stop
Which interest is used the most in real estate loans?
Simple Interest
What is Add-on Interest?
Interest that is added on to the total amount of the loan for it’s entire term. Then it’s added to the total principal amount before the monthly payments are calculated
What is Compound Interest?
Interest that is added on to the principal amount plus accrued interest
What are Points?
Points are a one-time service chare to the borrow for making the loan
What are the 2 types of Points?
Origination Points and Discount Points
Explain Origination Points
Lenders charge origination points (a service charge) to recover some costs of the loan process
How is a loan officer paid?
Through origination points
Explain Discount Points
Discount Points are for raising the effective interest rate of the loan
