Robert has a $500,000 mortgage on his home in Rochester, New York, with a 4.8% annual interest rate. After making payments for two years, his outstanding principal balance is now $475,000. How should the interest for his next monthly payment be calculated?
Correct Answer
C) Apply the monthly rate to the current $475,000 principal balance
Interest is always calculated on the current outstanding principal balance. With a balance of $475,000 and an annual rate of 4.8%, the monthly interest would be calculated as: $475,000 × (4.8% ÷ 12) = $475,000 × 0.004 = $1,900.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
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