Which factor has the greatest impact on the total interest paid over the life of a fixed-rate mortgage?
Correct Answer
C) The loan term
While all factors affect total interest paid, the loan term has the greatest impact. Extending a loan from 15 to 30 years can more than double the total interest paid, even though the monthly payment decreases. This is because interest compounds over time, and longer terms mean more time for interest to accumulate on the outstanding balance.
Why This Is the Correct Answer
While all factors affect total interest paid, the loan term has the greatest impact. Extending a loan from 15 to 30 years can more than double the total interest paid, even though the monthly payment decreases. This is because interest compounds over time, and longer terms mean more time for interest to accumulate on the outstanding balance.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
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A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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