4.6 Mortgages

1. How does an annual percentage rate (APR) for mortgages differ from a more traditional interest rate?

One downside of an adjustable-rate mortgage is that it is riskier than a fixed-rate mortgage. Explain why

3. In the video’s amortization example, the borrower makes a $711 payment, where $375 goes toward paying interest and $336 goes toward paying the principal. Should the borrower be worried that they’ll never pay off the mortgage? Why or why not?

4. Why is choosing an appropriate mortgage potentially even more important than choosing an appropriate auto loan?

1. ^{Decide which type of mortgage each person listed here might choose.}

   ^{a. Carl, who is living in Lexington with his girlfriend until she finishes her med school program}

   ^{b. Tanya, who’s worked out a budget that allows her to pay her mortgage and save for her three young children’s college funds}

   ^{c. Kristie, who needs lower payments for a few years until she’s done paying off her student loans, and who thinks she could then afford far greater payments}.